Toyota Motor Corp (TM, Financial) recently experienced a daily gain of 2.98%, with an impressive 3-month gain of 18.5%. Coupled with an Earnings Per Share (EPS) of 16.06, this paints an intriguing picture. However, the question remains: is the stock modestly overvalued? This article will delve into a comprehensive valuation analysis of Toyota Motor (TM) to answer this critical question.
Company Introduction
Founded in 1937, Toyota Motor Corp (TM, Financial) has grown to become one of the world's largest automakers. Selling 10.56 million units in fiscal 2023 alone, the company boasts a significant market share in both Japan and the U.S. Toyota Motor also holds investments in various other firms, including Uber Technologies, Joby Aviation, Aurora Innovation, and Isuzu Motors. Despite these impressive credentials, the company's current stock price stands at $194.59, which is higher than its GF Value of $174.78. This discrepancy paves the way for a deeper exploration of the company's intrinsic value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. This value is represented by the GF Value Line on our summary page, providing an overview of the stock's fair trading value. If the stock price significantly deviates from the GF Value Line, it could indicate overvaluation or undervaluation, significantly influencing future returns.
With a market cap of $263.10 billion, Toyota Motor (TM, Financial) appears to be modestly overvalued. The stock's current price of $194.59 per share is higher than the GF Value of $174.78. Consequently, the long-term return of Toyota Motor's stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with robust financial strength significantly reduces the risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Toyota Motor's cash-to-debt ratio of 0.32 falls short of 66.37% of 1225 companies in the Vehicles & Parts industry, indicating fair financial strength.
Profitability and Growth
Profitable companies, particularly those with consistent long-term profitability and high-profit margins, generally pose less investment risk. Toyota Motor has been profitable ten times over the past ten years, with an operating margin of 8.33%, which ranks better than 72.52% of 1252 companies in the Vehicles & Parts industry. Furthermore, the company's 3-year average annual revenue growth of 9% and EBITDA growth rate of 10.6% are higher than many of their industry peers.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) provides another perspective on profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than WACC. Toyota Motor's ROIC of 3.49 is indeed higher than its WACC of 2.67.
Conclusion
In summary, Toyota Motor (TM, Financial) appears to be modestly overvalued. The company demonstrates fair financial strength, strong profitability, and commendable growth. For a more detailed analysis of Toyota Motor's financials, visit their 30-Year Financials here.
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