Toyota Motors Corp (TM) is actually inexepensive
With all the attention Toyota ™has been receiving lately, one would think Toyota is the only car company worth investing in. The problem however is the stock price of TM has already risen so much this year that it’s difficult not to worry about its valuation. Let’s briefly take a closer look at TM’s valuation.
Trading at $131/share, I realized it’s hard to consider buying this stock. However, if you look at the stock more closely, TM is actually comparable to competitors. Compare the P/E ratio against Honda (HMC) and Daimlerchrysler (DCX) and you’ll find that TM is not so bad. For instance, HMC is trading with a P/E of 13.87, DCX is at 13.06, while TM is trading with a P/E of 15.96. For a company that’s about to become the #1 car company in the world, one would expect it to be trading at a higher multiple. Instead TM is trading within the industry average in terms of multiples.
Furthermore, if we compare the Earnings per Share (EPS), TM is much higher than any of the auto makers(way higher). Bottom line; do no let the price of the share fool you as it appears deceptive. The main reason TM's competitors stock appears less expensive is because they have more shares outstanding. That is not necessarily a good thing. In fact, Honda (HMC) is a quite expensive stock for a #9 auto producer (P/E of 13.87). From this perspective, Toyota’s stock is actually not as expensive. When Toyota becomes the #1 auto producer, we expect this stock to be in the $200 range.
Note: 12/27/06-I want to thank those of you who pointed out our inaccuracy on HMC's P/E. Despite the lower P/E of HMC, our position remains bullish on TM. We believed it is still the better buy. Thank you for visiting iBooyah.com.
Comments
This isn't accurate, PE (TTM):
HMC: 13.3
TM: 16.1
Honda may be the better "value" investment, but I like what I see coming from Toyota's hybrids much more.
Posted by: michael | December 26, 2006 08:38 PM
actually, the P/E is correct. see
see http://finance.yahoo.com/q?s=hmc
Posted by: john | December 26, 2006 09:37 PM
Honda's PE is not 26.66. It is about half of that. The bots that yahoo uses to calculate some of their figures really mess the numbers up on a foreign stock after it has a stock split as HMC recently has had. The P/E of HMC that yahoo shows will be accurate in about 9 months until then it will get closer to accurate each quarter.
A growing number 9 producer has a lot more room to grow and increase efficiencies of size as it grows than a growing number 1 producer. So typically it deserves a higher valuation. Currently by almost any measure TM has the highest valuation of any major automobile ccompany. (if you look at accurate numbers)
Posted by: Mr Wright | December 27, 2006 05:17 AM
Mr. Wright, thank you for pointing this out. We stand corrected. HMC P/E is lower, according to Google Finance.
Posted by: ibooyah | December 27, 2006 10:32 AM
I do not own TM. I have owned HMC since it was at 16 and change. I am considering selling HMC becasue I believe it is becoming slightly overvalued. I believe TM is more overvalued than HMC.
Why? Well, TM has become or is about to become the #1 carmaker in the world. It has significantly less room to continue to grow than HMC. TM's operating and gross margins are near record levels and are likely to compress to more normal levels. This means profits are likely to grow at slightly less than the rate of revenue growth. I think investors will be disappointed in this rate of growth and will punish the shares. Both TM and HMC had a large one time gain in the 4th quarter of last year when the Japanese gov't took over significant parts of their pension obligations. This means that both of their TTM P/E's are artificially deflated and any analysis based strictly on PE needs to take this into account.
Posted by: Mr Wright | December 27, 2006 08:01 PM
All my friends drive either honda or toyota. I can't recall any of them buying GM or Ford. I think either TM or HMC as a long term investment is a good move.
Posted by: joe | December 27, 2006 08:10 PM
One final point. This statement isn't exactly true.
"The main reason TM's competitors stock appears less expensive is because they have more shares outstanding."
With over 3.2 billion shares issued and outstanding TM has among the largest number of shares outstanding of any automobile company. This means that with its expensive price per share and huge number of shares outstanding TM's market cap is greater than that of HMC, F, GM and DCX combined. TM dosn't "look" expensive it IS expensive.
Posted by: Mr Wright | January 2, 2007 07:29 AM