With shares of Toyota Motor Corporation (NYSE:TM) trading at around $183.74, is TM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
Will Abenomics revive the auto sector in Japan? For those who aren't yet aware, Abenomics refers to Prime Minister Shinzo Abe's approach to reigniting the Japanese economy. If past events are any indication of future results, then he will have success, but only temporarily. In the end, he will only have made the situation worse. For a time, he will be as popular as Lance Armstrong in the United States in the mid-2000s. Then, he will be just as unpopular once reality sets in.
While this might seem to be a major part of the story for Toyota, it's not. Toyota relies moreso on the United States and China. Based on "expert" predictions, both countries are expected to show growth. Considering the facts that incomes are declining and taxes are increasing in the United States, it would be difficult to find a reason for discretionary spending to increase. China is a bit more difficult to figure out because we don't know what's real and what's not real. Therefore, an attempt will not be made.
On a company-specific basis, Toyota has been an all-star. For example, according to Glassdoor.com, 95 percent of employees approve of CEO Akio Toyoda. That's an outstanding number. Worldwide sales of Toyota hybrids have also topped 5 million units.
Many people might think that people buy hybrids because of the environment. While that might be true, they will not buy hybrids if the price isn't right. People always put price first, regardless of what they say. The point here is that Ford Motor Co. (NYSE:F) is gaining ground on Toyota in hybrids, which has a lot to do with price. Toyota's hybrid market share was 71 percent last year at this time. It's now 58 percent. That's still impressive, but the trend is heading in the wrong direction.
There are other concerns for Toyota, which include a decline in revenue in 2012 and inconsistent earnings. The stock also didn't hold up well in 2008. Then again, no automaker did. That's certainly not the place to be when the market heads south.
Now let's take a look at some comparative numbers. The chart below compares fundamentals for Toyota, Ford, and General Motors Company (NYSE:GM). Toyota has a market cap of $183.80 billion, Ford has a market cap of $55.78 billion, and General Motors has a market cap of $43.42 billion.
| TM | F | GM | |
| Trailing P/E | 18.81 | 9.62 | 10.86 |
| Forward P/E | 12.98 | 8.55 | 7.31 |
| Profit Margin | 3.51% | 4.27% | 4.00% |
| ROE | 7.94% | 33.97% | 15.22% |
| Operating Cash Flow | $30.85 Billion | $7.18 Billion | N/A |
| Dividend Yield | 1.20% | 2.90% | N/A |
| Short Position | N/A | 1.90% | N/A |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for Toyota is close to the industry average of 0.80.
| Debt-To-Equity | Cash | Long-Term Debt | |
| TM | 1.10 | $35.57 Billion | $165.78 Billion |
| F | 5.99 | $24.18 Billion | $107.60 Billion |
| GM | 0.48 | $27.20 Billion | $18.42 Billion |
T = Technicals Are Strong
Aside from the past month, Toyota has outperformed its peers for every time frame listed below.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| TM | 9.02% | 24.51% | 48.92% | 59.28% |
| F | 14.91% | 11.19% | 36.35% | 24.52% |
| GM | 14.77% | 9.56% | 41.26% | N/A |
At $183.74, Toyota is trading above all its averages.
| 50-Day SMA | 171.26 |
| 100-Day SMA | 166.22 |
| 200-Day SMA | 163.96 |
E = Earnings Have Inconsistent
Earnings have been all over the map, but Toyota usually delivers impressive profits. A bigger concern is that revenue declined in 2012.
| 2008 | 2009 | 2010 | 2011 | 2012 | |
| Revenue ($)in billions | 265.63 | 210.71 | 204.17 | 230.48 | 225.88 |
| Diluted EPS ($) | 10.92 | -2.86 | 1.44 | 3.16 | 2.19 |
When we look at the last quarter on a year-over-year basis, we see a decline in revenue and an increase in earnings.
| 12/2011 | 3/2012 | 6/2012 | 9/2012 | 12/2012 | |
| Revenue ($)in billions | 62.65 | 69.31 | 69.37 | 69.67 | 61.48 |
| Diluted EPS ($) | 0.66 | 0.96 | 2.31 | 2.10 | 0.73 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Might Support the Industry
On the positive side, there is pent-up demand and easy credit. On the negative side, these trends aren't sustainable.
Conclusion
Toyota is a well-run company that still has a lot of upside potential. However, there are considerable risks due to the macroeconomic environment. Toyota is a WAIT AND SEE.
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