Toyota's Behind the Eight Ball, So Why Aren't Investors Spooked?

Toyota headquarters
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Toyota headquarters

Imagine you are an investor and someone presents you with the following scenario: There's a company with a leading brand in a segment, but production has been crippled by circumstances outside of their control.

The currency where they manufacture is surging which is chewing into profits and their brand has been tarnished with major recalls.

This company is losing share in the world's top market due to stronger competition, oh and it can't give a business outlook due to a number of uncertainties.

As an investor, what does this profile say to you?

Does it make you want to step up and plunk down ten grand to buy shares? Yeah, that's what I thought. Most of us would say no.

And yet, this scenario which describes Toyota, does not spook investors in the Japanese automaker. To the contrary, shares of Toyota have held up and continue to hold up despite the growing list of headwinds.

Look at the p/e ratios (for trailing earnings) for some of the worlds largest automakers:

  • Nissan 23.07
  • Toyota 20.59
  • Honda 10.41
  • Ford 9.10
  • GM 7.57


Why are investors sticking with Toyota?

It all comes down to Toyota's track record, balance sheet, and belief that Toyota will eventually bounce back.

As Efraim Levy, the auto analyst at Standard and Poor's, wrote in a recent research note, "We believe TM's premium valuation to peers is warranted by consistent and above-average profitability, large market share, and what we view as its strong balance sheet." Efraim's 12 month price target in April for shares of TM was $85. By the way, he's not alone in believing Toyota shares will come back.

My point here is not to say you should or should not invest in Toyota. That's for you to decide. Instead I'm bringing up Toyota's valuation because it's holding up under circumstances that would, and have, sunk other stocks and companies.

A remarkable testament to the staying power of the world's largest automaker.

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