TM Investment Analysis Report & Stock Research, Toyota Motor Corp. ADS

Ockham's Rating/Recommendation Summary

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TM Revenue

As a value investing shop, we are interested in seeing how TM's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 0.85x and the low end of the range at 0.57x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for TM of 0.68x is somewhat below its historical weighted average by 5%. Given this level of sales per share, we suggest a neutral share price forecast. To the extent there is a further drop in the Price to Sales ratio from current levels, which would occur through some combination of increased sales per share or a decline in share price, we would only become more positive about the Price to Sales ratio outlook.

TM Cash Earnings

As the old saying goes, "Cash is King!" We look at reported Cash Earnings, but the main emphasis of our analysis involves stripping out non-cash events such as depreciation from our cash earnings analysis. This helps us view the cash flows more clearly. Nevertheless, an analysis of Cash Earnings (both reported and otherwise) is absolutely pivotal to assessing a company's value, and currently TM is significantly above its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from TM. For example, TM's Cash Earnings ratio per share has fluctuated between 8.31 and 12.76 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where TM is with respect to prior business periods.

So what does this tell us about TM in particular? Basically, we would value the current level of Cash Earnings per share (which is at 19.66) as significantly overvalued. Just by looking at the last closing price of TM, which was $74.71, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded TM with a higher stock price. So basically, we don't view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that TM may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.

TM Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from TM against the historic high and low levels over an available data range. Because TM has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In TM’s case, the estimated annual dividend is $1.45 producing a current dividend yield of 1.94%. The highest dividend yield from TM in recent history was 4.38% while the lowest dividend yield was 0.00%. TM is not making us feel all that confident when their current dividend yield is below the historical median by 11.42%.