The Options Advantage
105 W. Monument Street
Baltimore, MD 21201
Wednesday, February 25, 2004
URGENT EMAIL – #155
** An Update on Toll Brothers
Toll Brothers Inc. (TOL-NYSE) reports its numbers tomorrow.
I am sure they will be good. That is not why we are short.
What we are looking for is its forward-looking statements.
The company will boast about the usual backlog. However,
the number I’m interested in is the conversion from
deposits to actual purchases. You see, Toll Brothers
calculates its construction backlog by the number of
relative small-dollar deposits that people put down on
future houses they want to have built.
It those people back out, then the deposit is usually
forfeited. So, the backlog is not necessarily the best
indicator of activity, it is just one indicator.
Lately, most companies that have announced good earning
have seen their share price sell off, including Cisco, HPQ,
etc. This is a sign that the market has priced in such high
expectations that even a matching earnings number, or even
one that is slightly better, is no cause for celebration.
The reporting company has to BLOW the numbers out of the
water in the current market in order to shoot higher. Our
put position is a bet that Toll is close to its peak for
the short term.
In any event, keep an eye on your MENTAL STOP LOSS. The
action should be pretty wild over the next few days and
weeks. I am traveling for most of the day tomorrow and
Friday. However, I will be in close touch with the Oxford
Club HQ. If there are any changes, I will inform you as
quickly as possible.
Regards,
Karim Rahemtulla
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