Japan-based auto industry giant Toyota Motor Corporation (TM) sold 2.332 million vehicles in the United States in 2021, outpacing General Motors’ Co. (GM) 2.218 million sales. GM’s U.S. sales were down 13% for 2021, while TM was up 10% for the year, marking the first time the Detroit automaker missed the lead in U.S. auto sales for a full year since 1931. However, Toyota does not  consider its U.S. sales  sustainable. TM’s shares have gained 29.9% in price over the past year and 13.2% over the past six months. And over the past five days, the stock has gained 8.2% to close yesterday’s trading session at $199.19.

The company is one of the most well-known names in the auto industry worldwide. However, Toyota has lagged its peers in embracing battery-electric vehicles, or BEVs. However, TM recently announced an ambitious plan to spend $35 billion to accelerate BEV development and introduce 30 new EV models by 2030. In addition, the Japanese automaker is planning to launch its operating system for its vehicles by 2025, which should be capable of handling advanced operations, such as autonomous driving.

But TM plans to suspend production at five domestic factories in January, citing supply chain issues, chip shortages, and the pandemic, which will affect some 20,000 vehicles. Furthermore, the company expects “the shortage of semiconductors to continue over the long term.”

Click here to checkout our Electric Vehicle Industry Report for 2022

Here is what could shape TM’s performance in the near term:

Mixed Valuation

In terms of forward P/E, TM is currently trading at 9.75x, which is 40.9% lower than the 16.51x industry average. Also, its 0.98 forward Price/Sales ratio is 18.2% lower than the 1.20 industry average.

However, TM’s forward EV/Sales is 7.3% higher than the 1.44x industry average, and its forward EV/EBIT is 12% higher than the 13.84x industry average.

Stable Financial Growth

TM’s total sales revenues increased 11.4% year-over-year to ¥7,545.74 billion ($65.16 billion) in the quarter ended September 30. Its operating income increased 48.2% from its year-ago value to ¥749.98 billion ($6.48 billion). And its net income came in at ¥638.52 billion ($5.51 billion), indicating an increase of 32.5% year-over-year.

In addition, TM’s EBIT has increased at a 10.1% CAGR over the past three years. And its net income and EPS have grown at CAGRs of 5.6% and 7.5%, respectively, over the past three years.

Mixed Profitability

TM’s 19.87% gross profit margin is 44.7% lower than the 35.91% industry average. Also, its 13.77% and 4.49% respective ROE and ROTC are 20.1% and 40.5% lower than the industry averages.

However, its 15.39% EBITDA margin is 20.2% higher than the 12.80% industry average, while its 10.03% net income margin is 52.8% higher than the 6.56% industry average.

POWR Ratings Reflect Uncertain Prospects

TM has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade  for Value, which is consistent with its mixed valuation.

TM also has a C grade for Quality, in sync with its mixed profitability.

Of the 67 stocks in the Auto & Vehicle Manufacturers industry, TM is ranked #18.

Beyond what I have stated above, one  can also view TM’s grades for Sentiment, Growth, Momentum, and Stability here.

View the top-rated stocks in the Auto & Vehicle Manufacturers industry here.

Bottom Line

With investment plans in the fast-growing EV space, along with its technological advancements, TM’s long-term prospects look bright. However, supply chain issues and a chip shortage could hinder its near-term production growth. Thus, we think investors should wait for the supply chain issues to ease  and the company’s  margins to improve before investing in the stock.

How Does Toyota Motor Corporation (TM) Stack Up Against its Peers?

While TM has an overall POWR Rating of C, one might want to consider looking at its industry peers, Daimler AG (DDAIF) and Mazda Motor Corporation (MZDAY), which have an A (Strong Buy) rating.

Click here to checkout our Electric Vehicle Industry Report for 2022

TM shares were trading at $201.04 per share on Wednesday afternoon, up $1.85 (+0.93%). Year-to-date, TM has gained 8.49%, versus a 0.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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