Looks Like Toyota Stock Has Reached The End Of The Road After It’s Recent Rally

Toyota Motors’ stock (NYSE: TM) has bounced back more than 15% since falling to $111 on March 23 to reach its current level of around $126. Notably, this compares to the 36% growth in the S&P 500 over the same period. We believe Toyota now has limited upside potential. The key is the company’s stock is 12% higher compared to the end of FY 2019 (FY ends in March). Our dashboard ‘What Factors Drove 4% Change In Toyota Motors Stock Between 2018 And Now?‘ provides the key numbers behind our thinking, and we explain more below.

Some of this rise of the last two years is helped by the roughly 5% increase seen in Toyota Motors’ revenues from FY 2018 to FY 2020 but offset by the Net Income margin, which fell from 8.5% in 2018 to 6.9% in 2020. The earnings growth, on a per-share basis, was lower -9.8%, slightly offset by share buybacks. Specifically, the company has invested about $12 billion in repurchases from 2018 to 2020, resulting in about 5% lower outstanding shares. While Toyota Motors did have about $39 billion in cash as of the last report, we believe it will likely be challenging for the company to sustain this level of buybacks till the coronavirus pandemic situation gets clear.

Finally, Toyota’s P/E ratio grew from about 8x at the end of FY 2018 to 9x at the end of FY 2020 and has remained at that level over recent months. Under the current situation, there is a limited upside for Toyota’s multiple when compared to levels seen over recent years.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to affect consumption and consumer spending adversely. More than 35% of Toyota’s total revenue comes from the US region, which is worst impacted by the outbreak. Lower consumer spending and consumption would lead to lower demand for automobiles. These factors are bound to hurt Toyota’s revenues. We believe Toyota’s Q1 2021 results will confirm the trend in revenues as the Americas and Europe will show negative growth. It is also likely to accompany a clearer Q2 as well as FY’21 guidance.

View our dashboard analysis Coronavirus Trends Across Countries, And What It Means For The US for the current rate of coronavirus spread in the US and forecasts on where it could be headed, based on comparison with other countries. Our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture of historic crashes and how the sell-off in March compares.

While Toyota’s stock seems to be priced appropriately, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams