Should You Take a Chance With Toyota Motor?

With shares of Toyota Motor (NYSE:TM) trading around $121, 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.

The government of Japan has joined hands with the giant car-making companies, including Toyota Motor. The purpose of this alliance is to bring the fuel cell era quickly. The fuel cell is still a complex and expensive technology. It is basically a zero-emission cell that runs on hydrogen gas and produces water. Since its only byproduct is water, therefore its arrival and spread will almost end automotive pollution. It has been reported that Toyota Motor made a request to the National Highway Traffic Safety Administration to relieve Toyota’s new vehicle, with fuel cells, of the safety guidelines as described by the federal government.

T = Technicals on the Stock Chart Are Strong

Toyota Motor stock has been surging higher in recent times. However, the stock is currently pulling back and may need time to stabilize before heading higher. 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 above its rising key averages, which signals neutral to bullish price action in the near-term.

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

17.13%

43%

40%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of Thursday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish 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), and Tesla Motors (NASDAQ:TSLA) — and sector?

Toyota Motor

General Motors

Ford Motor

Tesla Motors

Sector

Year-to-Date Return

-0.13%

-7.66%

12.12%

51.99%

2.44%

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 government of Japan has joined hands with the giant car-making companies, including Toyota Motor, to bring the fuel cell era quickly. The stock has been surging higher in recent times but is currently pulling back. 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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