The Stock of the Week: Toyota Motor Corp. Does it worth it?

The Stock of the Week: Toyota Motor Corp. Does it worth it?

We’ve seen Toyota Motor Corp. vehicles all around the world. As a Japanese automotive manufacturer founded in 1937, you can say the company has lots of experience in building all kinds of vehicles. Toyota offers a large array of vehicles for all types of use cases.

Apart from combustion engine cars, Toyota manufactures and sells hybrid models as well. Another not so well known fact is that Lexus is a luxury car brand owned by Toyota. After a closer look, you would find lots of similarities between the product lines of both makes.

Toyota Motor Corp: The company, products, history

Founded in 1937, nowadays Toyota is the largest company in Japan. Founded by Kiichiro Toyoda as a spinoff of his father’s company Toyota Industries. Nowadays, Toyota is a global market leader with manufacturing facilities all across the globe. 

The company offers a wide range of combustion engines, hybrid, and all-electric vehicles. Toyota Motor Corp manufactures cars under a few different brands: Toyota, Lexus, Daihatsu, Hino, and Ranz. A little known fact (I found out about this during my research for this post) is that Toyota Motor Corp owns 20% of Subaru Corp. Apart from Subaru, Toyota owns stakes at Mazda, Isuzu, Panasonic, and others.

With all of that diverse portfolio of products, I would say the brand is very well suited to withstand almost all kinds of market conditions. As of 2020, Toyota has almost 360 000 employees, which is a lot, but after all, we are talking about a company with a $199B market cap (stock ticker: $TM).

Financial parameters as of December 2020

Market cap$199B
P/E Ratio14.9
Price-to-Book Ratio0.97
P/E * Price-to-Book14.5
Current Ratio1.07
Dividend Yield %$2.55
EPS$9.39 YoY for the past 12 months
Data source: https://www.macrotrends.net/ 

What do I like about these numbers? 

The short answer is pretty much everything. P/E is right on the spot, Price-to-Book ratio is a bit on the lower side of things, but still very good. The Current ratio signals that the company owns enough equity to pay short-term obligations. 

The dividend yield is also well at $2.55. If it was less than $2, I would be a bit concerned with it, as well as if it was more than $5. It’s on the lower side, but this is not a bad thing in general. Companies with high yield sometimes signal for something going wrong in the future.

What I don’t like about these numbers? 

I can’t think of something bad here. My only concern is with Toyota Motor Corp. profits. In general, for the past 10-15 years, profits are somewhat flat, going down during a recession and going slightly up afterward. Yes, historical performance is not a guarantee for future performance, but let’s face it: owning a car is less and less meaningful.

As more and more people are realizing that for 90% of the time their cars are sitting parked and unused, the car sales will go down. Toyota offers products in different segments, from luxury to mid-tier cars, to vans and all-terrain vehicles. To have a diverse product portfolio is definitely a good thing.

However, Toyota seems like is still standing on the fence with innovation. Yes, in 2018 they invested a few billion $ in R&D, but that might be a bit late. Let’s look at what Tesla is doing. They are probably more of a tech company than a car company. I’m probably afraid that Toyota would be late to the party and might lose its edge.

Final thoughts: Should you own Toyota Motor Corp. stock?

The numbers are showing that yes, you should definitely consider owning Toyota’s stock as it currently trades below its real value. However, with the ongoing pandemic, we’ve seen the news about car parking lots full of new cars that were not sold. This means that apart from numbers, there is another factor to consider – the need to own a car. I mean, we are investing for the long term, right? If that’s the case, ask yourself this: Would you still need a car in 10 years? What about in 20 years?

There were few startups during the past few years that promote car-sharing services. These appear as pretty good solutions in cases when a person doesn’t own a car or doesn’t want to own one. My verdict would be that we’ll see more and more people going away from owning a car. 

There are still small families owning more than 1 car, even more than 2. At home, my partner and I owned 2 cars for a year and a half. For 90% of the time, one of them was parked and rarely driven. For the past year, we had only 1 car, and since Covid19 hit the world it also stays mostly parked. 

Do your own research before purchasing Toyota stock, but consider that fewer and fewer people would need cars in the future.

Let me know in the comments down below what you think about this: Is owning a car mandatory for your daily lifestyle nowadays?

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