Where Will Toyota Motor Go Next?

With shares of Toyota Motor (NYSE:TM) trading around $109, 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’s relocation of its U.S. headquarters to Plano, Texas, may bring $7.2 billion of economic activity over ten years, according to an analysis for the city. The figure includes $4.2 billion from payroll, along with direct and indirect spending, and sales and property tax revenue, according to the analysis by Grant Thornton LLP, a Chicago-based audit, tax and advisory company. The report was released May 12, when the city, a Dallas suburb, approved incentives for the company.

The world’s largest carmaker, based in Toyota City, Japan, said last month that it would consolidate U.S. sales, engineering and finance operations to Texas, moving jobs from California, New York, and Kentucky. By 2018, the company could have 3,650 full-time workers in Plano at an average salary of $104,000, according to the report. Plano approved $6.75 million of grants for the company, along with discounts on property taxes. The state is offering $40 million of incentives. Carly Schaffner, a Toyota spokeswoman, said in an e-mail that the company appreciates support from Plano and its residents. The company is “committed to being a model corporate citizen,” Schaffner said.

T = Technicals on the Stock Chart are Weak

Toyota Motor stock has been pulling back over the last couple of quarters. The stock is currently trading near lows for the year and may need time to consolidate 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 below its rising key averages which signal neutral to bearish 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

18.99%

13%

10%

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

June Options

Steep

Average

July Options

Steep

Average

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

-10.40%

-16.30%

2.50%

26.37%

1.54%

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’s relocation of its U.S. headquarters to Plano, Texas, may bring $7.2 billion of economic activity over ten years. The stock has been pulling back and is currently trading near lows for the year. Over the last four quarters, earnings and revenues have been on the rise, which has left investors pleased. 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.

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