Where Will Toyota Motor Go Next?

With shares of Toyota Motor (NYSE:TM) trading around $128, 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 is still the world’s largest car manufacturer by volume, according to January-through-September sales data released by the Japanese automaker. Toyota beat out rivals General Motors (NYSE:GM) and Volkswagen (VLKAY.PK). Toyota’s strong sales in the U.S. pushed the automaker to unload 7.412 million vehicles in the year to date. General Motors came in second, with 7.25 million vehicles, and Volkswagen sold 7.03 million cars.

T = Technicals on the Stock Chart Are Strong

Toyota Motor stock has been in a range in recent months. The stock is currently trading at highs for the year, but slightly below its all time high prices. 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

(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

28.70%

53%

51%

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

November Options

Flat

Average

December 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 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?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

55.77%

113.50%

9.74%

213.10%

Revenue Growth (Y-O-Y)

-8.43%

-10.59%

-1.86%

16.55%

Earnings Reaction

6.41%

3.12%

1.04%

4.36%

Toyota Motor has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been happy 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, 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

37.69%

23.17%

35.52%

381.8%

33.12%

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

Conclusion

Toyota Motor provides innovative vehicles and related products to consumers and companies worldwide. The stock has been in a range in recent months, but is currently trading at highs, slightly below its all time highs for the year. Over the last four quarters, investors in the company have been happy, however, revenues have been declining while earnings have been rising. Relative to its peers and sector, Toyota Motor has been a year-to-date performance leader. Look for Toyota Motor to OUTPERFORM.

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