Can Toyota Continue This Bull Run?

With shares of Toyota Motor (NYSE:TM) trading around $115, 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 and financial business. The company operates through three business segments. The Automobile segment is engaged in the design, manufacture and sale of car products, including sedans, minivans, sport-utility vehicles and trucks, as well as the related parts and accessories. The Finance segment is involved in the provision of financial services related to the sale of the Toyota’s products, as well as the leasing of vehicles and equipment. The Others segment is involved in the design, manufacture and sale of housings, as well as the information and communication business. Through its segments, Toyota is able to fill strong demand for its innovative products and services well into the future.

T = Technicals on the Stock Chart are Strong

Toyota Motor stock has seen a significant uptrend over the last couple of years. Currently, the stock has broken above key resistance levels which may see the stock coasting towards highs established in early 2007. 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 signal neutral to bullish price action in the near-term.

TM

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(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

25%

40%

36%

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

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, 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 good 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?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

355.56%

211.54%

350.65%

150%

Revenue Growth (Y-O-Y)

21.78%

19.84%

56.40%

22.64%

Earnings Reaction

1.04%

4.36%

4.97%

2.95%

Toyota Motor has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been very pleased with Toyota Motor’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

Toyota Motor

Ford Motor

General Motors

Honda Motor

Sector

Year-to-Date Return

24.04%

4.52%

5.72%

10.45%

8.19%

Toyota Motor has been a relative performance leader, year-to-date.

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Conclusion

Toyota Motor is revolutionizing the automobile industry around the world with its innovative products and services. The stock has performed very well in recent years and looks to be headed towards highs not seen since 2007. Earnings and revenue figures have been showing significant growth which has really pleased investors. Relative to its peers and sector, Toyota Motor has led, in year-to-date performance, by a wide margin. Look for Toyota Motor stock to continue to OUTPERFORM.

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