Toyota Motor Corp stock has been on a big rally this year, outperforming the S&P 500 with an 18% increase compared to the S&P’s 9% increase. The Japanese stock market has been performing well due to corporate governance overhauls and a focus on shareholder returns. Additionally, easing commodity prices and supply chain issues have been helping automotive stocks. Toyota’s Q4 FY’24 results exceeded expectations, with operating profit increasing by 78% due in part to a weaker yen, making Toyota’s products more competitive internationally.
While demand for electric vehicles has been slowing due to issues such as high prices, range concerns, and a lack of charging infrastructure, this trend has benefited Toyota, which has focused more on hybrid models rather than electric vehicles. Toyota’s electrified vehicle sales, primarily hybrids, increased by 35% over the fiscal year ending March 31, 2024, accounting for 37.4% of overall sales. Toyota’s stock has seen significant gains, rising 40% from $155 in early 2021 to around $220 currently, outperforming the S&P 500 over the same period.
Despite the strong gains, Toyota stock’s performance has been inconsistent, with returns of 20% in 2021, -26% in 2022, and 34% in 2023. In comparison, the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023, indicating that Toyota underperformed in 2021 and 2022. The Trefis High Quality Portfolio, consisting of 30 stocks, outperformed the S&P 500 each year over the same period, suggesting that individual stocks, including Toyota, have struggled to consistently beat the benchmark index. The macroeconomic environment, with high oil prices and interest rates, could impact Toyota’s future performance.
Looking ahead, Toyota’s near-term outlook is mixed, with projected profits for FY’25 expected to drop by 28% due to higher material prices, labor costs, and R&D expenses. Revenue growth is also expected to slow as the global economy cools. However, Toyota’s stock trades at a reasonable valuation of 10x forward earnings, given its edge in hybrid vehicles and higher margins compared to other mass market manufacturers. The valuation for Toyota stock is projected at $248 per share, 15% higher than the current market price. Further analysis on Toyota’s valuation and revenue streams is available for more details.
In conclusion, Toyota Motor Corp has seen a strong rally in its stock this year, benefiting from the global focus on corporate governance and shareholder returns, as well as the company’s success in the hybrid vehicle market. While the stock has shown inconsistency in performance, the Trefis High Quality Portfolio has consistently outperformed the S&P 500, raising questions about individual stock performance. Despite challenges in the macroeconomic environment, Toyota’s reasonable valuation and strong position in the hybrid vehicle market indicate potential for future growth. Further analysis is recommended for investors considering investing in Toyota stock.
