Can Toyota Motor Break Higher?

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.

Toyota continues to refine its portfolio in North America as it looks to shed under-performing models. The automaker will cease production on the FJ Cruiser in 2014, while the Venza midsize CUV or Yaris could be the next to go, predicts Wards Auto. The electric RAV4 could be safe the short-term despite low sales as Toyota has made a sizable investment in EV technology through a partnership with Tesla.

T = Technicals on the Stock Chart Are Mixed

Toyota Motor stock has been trending higher in the past year. The stock is currently surging higher and looks set 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 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

21.58%

50%

48%

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

January Options

Steep

Average

February 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 significant 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 Improving 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?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

69.77%

55.77%

113.50%

9.74%

Revenue Growth (Y-O-Y)

16.19%

-8.43%

-10.59%

-1.86%

Earnings Reaction

-0.10%

6.41%

3.12%

1.04%

Toyota Motor has seen increasing earnings and improving 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

33.64%

50.38%

23.51%

353.70%

36.84%

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

Conclusion

Toyota Motor provides innovative vehicles and related products to consumers and companies worldwide. The company continues to refine its portfolio in North America as it looks to shed under-performing models. The stock has been trending higher in the past year and is currently surging higher. Over the last four quarters, earnings have been increasing while revenues have been improving, which has left investors happy 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.

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