Toyota Motor Corp’s stock has surged by 18% this year, outperforming the broader S&P 500 index. The Japanese stock market as a whole has been performing well due to corporate governance improvements and shareholder returns, as well as easing commodity prices and supply chain issues benefiting automotive stocks. Toyota’s fourth-quarter results for the fiscal year 2024 exceeded expectations, with a 78% increase in operating profit driven partly by a weaker yen making their products more competitive internationally.
On the other hand, demand for electric vehicles has been slowing due to issues such as high prices, range concerns, and inadequate charging infrastructure. This slowdown in EV demand benefits Toyota, as customers are turning to their hybrid models, which offer better fuel economy without the range limitations of EVs. Toyota’s electrified vehicle sales, primarily hybrids, increased by 35% in the last fiscal year, now accounting for 37.4% of overall sales.
Toyota’s stock has seen significant gains, rising by 40% since January 2021 to around $220. However, the stock’s performance has been inconsistent, with returns of 20% in 2021, -26% in 2022, and 34% in 2023, underperforming the S&P 500 in 2021 and 2022. Given the current uncertain economic environment with high oil prices and interest rates, the question arises whether Toyota will continue to underperform or see a strong jump in the future.
Looking ahead, Toyota’s near-term outlook is mixed, with projected profit drops for fiscal year 2025 due to higher material and labor costs, as well as increased research and development expenses. Revenue growth is expected to slow to just 2.0% as the global economy cools. However, with a forward earnings valuation of 10x, Toyota stock is deemed reasonably priced, given its advantage in hybrid vehicles and higher margins compared to other mass-market manufacturers. The stock is valued at around $248 per share, 15% higher than the current market price.
In conclusion, Toyota’s stock performance has been boosted by positive factors such as strong Q4 results, hybrid vehicle sales growth, and a reasonable valuation. However, challenges in the EV market and potential economic headwinds pose risks to the company’s future performance. Investors should weigh these factors carefully before deciding whether Toyota stock is a buy at its current levels.
