Can Toyota Motor Stock See a Turnaround?

With shares of Toyota Motor (NYSE:TM) trading around $120, 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.

Whenever automakers look at the leader board in passenger cars, it’s become an annual tradition to see the Toyota Camry perched on top. In fact, Toyota will sell well above 400,000 Camrys in 2013 as it claims first prize again among U.S. car shoppers. As the automaker plans to debut its redesigned Camry, it appears Toyota is unfazed by style critiques but will make sure its lacking safety rating improves. Bill Fay, Toyota’s head of U.S. sales, told the Associated Press on Thursday that the next-generation Camry will receive a boost in safety features but suggested there wouldn’t be much in the way of style upgrades for the famously vanilla sedan. The automaker plans to reveal more by December 20. While noting the success of the Camry in its current state of style, Fay reminded the Associated Press that, “Beauty is in the eye of the beholder.”

T = Technicals on the Stock Chart are Mixed

Toyota Motor stock has been trending higher in the past year. However, the stock is currently pulling back 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

22.33%

63%

60%

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

December Options

Steep

Average

January 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

-0.1%

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

29.29%

39.82%

26.87%

313.90%

32.99%

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 will sell well above 400,000 Camrys in 2013 as it claims first prize again among U.S. car shoppers. The stock has been trending higher in the past year, but is currently pulling back. 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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