Where Will Toyota Motor Go Next?

 

With shares of Toyota Motor (NYSE:TM) trading around $113, 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:

T = Trends for a Stock’s Movement

Toyota Motor is a Japan-based company mainly engaged in the automobile business and financial business. The company operates through three business segments: automobile, finance, and others. Through its segments, Toyota Motor designs, manufactures, and sells vehicles as well as related parts and accessories; offers financial services related to the sale of its products; and is involved in the design, manufacture, and sale of housing, information, and communication businesses. Vehicles and related products are seeing increased innovation, and Toyota Motor is at the head of this trend. Toyota has been dominating the competition and has been first to provide new technologies, so look for the company to continue innovating.

Toyota Motor, the world’s largest automaker, expanded a 14-month-old recall of more than 2 million vehicles for faulty air bags after supplier Takata Corp. told customers further fixes may be needed. Toyota called back an additional 650,000 vehicles, including Corolla cars, the Toyota City, Japan-based company said today in an e-mail. A total of 2.27 million Toyota vehicles worldwide are affected by the recall because most cars that were called back last year weren’t fixed, spokeswoman Shino Yamada said.

The carmaker has received one report of a seat-cover burn related to defective air-bag inflators. Toyota is the first Japanese carmaker to widen last year’s recall involving Takata’s air bags, with Honda Motor Co. and Nissan Motor Co. saying they’re studying the issue. Toyota, Honda and Nissan recalled more than 3 million vehicles last year because of defective air-bag inflators supplied by Tokyo-based Takata. Toyota said it determined that the serial numbers provided by Takata were incomplete and excluded some that were potentially flawed. Takata takes the matter seriously and will cooperate with carmakers, spokeswoman Kikko Takai said.

T = Technicals on the Stock Chart are Mixed

Toyota Motor stock has been surging higher in recent times. The stock is currently moving higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Toyota Motor is trading between its rising key averages which signal neutral price action in the near-term.

TM

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Toyota Motor options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Toyota Motor options

17.08%

13%

11%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Average

Average

August Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Toyota Motor’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Toyota Motor look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-12.83%

331.45%

69.77%

55.77%

Revenue Growth (Y-O-Y)

3.78%

1.69%

16.19%

-8.43%

Earnings Reaction

-0.8%

-0.23%

-0.1%

6.41%

Toyota Motor has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Toyota Motor’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Toyota Motor stock done relative to its peers, General Motors (NYSE:GM), Ford Motor (NYSE:F), Tesla Motors (NASDAQ:TSLA), and sector?

Toyota Motor

General Motors

Ford Motor

Tesla Motors

Sector

Year-to-Date Return

-6.51%

-12.00%

9.75%

34.37%

7.40%

Toyota Motor has been an average performer, year-to-date.

Conclusion

Toyota Motor provides innovative vehicles and related products to consumers and companies worldwide. The company expanded a 14-month-old recall of more than 2 million vehicles for faulty air bags. The stock has been surging higher in recent times and looks poised to continue. Over the last four quarters, earnings and revenues have been on the rise. However, investors have had conflicting feelings about recent earnings announcements. Relative to its peers and sector, Toyota Motor has been an average year-to-date performer. WAIT AND SEE what Toyota Motor does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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