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Toyota Plunges 20% in 6 Months: At a Low P/E, is TM Stock a Buy Now?
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Japan’s auto powerhouse, Toyota (TM - Free Report) , appears to be attractively valued now. TM is currently trading at a forward price/earnings of 7.6X, lower than the industry’s 8.01X as well as its own 5-year average of 9.34X. Toyota currently carries a Value Score of A.
Image Source: Zacks Investment Research
Over the past six months, shares of TM have declined 20%, underperforming the auto sector’s growth of 22%. Currently hovering at $175/share, the stock is trading at more than 30% off its 52-week high.
With Toyota trading at a discount now, we delve into the fundamentals to evaluate if investors should park their cash in this automotive giant at this time.
Toyota’s Weak Fiscal 1H’25 Results & Outlook
After notching record highs in production, sales and profit in fiscal 2024, world’s #1 automaker in terms of sales volumes faced headwinds in the first half of fiscal 2025. In the last reported quarter, Toyota’s operating profit plunged 20% year over year to 1.16 trillion yen, marking the first profit decline for the company in two years, primarily due to soft sales in North America. Deterioration in sales volume and sales mix, along with increasing labor costs, hit the operating margins of North America.
In first half of fiscal 2025 (ended Sept. 30), Toyota’s consolidated global vehicle sales contracted 4% year over year to 4,556,000 units amid production disruptions. Net income for the first half of fiscal 2025 tumbled 26.3% year over year, with margins shrinking to 8.2%— down 3.6 percentage points on a yearly basis.
Toyota has lowered its fiscal 2025 vehicle sales projection to 10.85 million units from its previous forecast of 10.95 million units to 11.09 million units sold in fiscal 2024. Operating income is projected to be ¥4.3 trillion, indicating a contraction of 19.6% year over year. Investment in human resources and growth areas will be a big hit on the operating profits in the current fiscal. In the first half, TM spent 290 billion yen on these, and it plans to spend another 540 billion yen in the second half of fiscal 2025. Pretax profit is estimated to be ¥4.98 trillion, implying a decline from ¥6.96 trillion generated in fiscal 2024.
These challenges are not unique to Toyota. Its closest peer, Honda (HMC - Free Report) , also saw its operating profit decline 15% year over year in the second quarter of fiscal 2025 owing to weak market conditions in China. Honda cut its profit view, now expecting a 14% year-over-year drop in net profit for fiscal 2025 compared with a 9.7% fall guided earlier.
While Toyota has cut its operating profit and sales volume guidance, it reaffirmed its annual revenue forecast of 46 trillion yen and a net income of 3.57 trillion yen. While fiscal 2025 projected revenues imply modest growth, the net profit view suggests a 28% decline from fiscal 2024 levels.
TM’s Investor-Friendly Initiatives Offer Respite
Despite short-term struggles, Toyota continues to reward shareholders with its dividend policy. In fiscal 2024, the company paid total dividend of 75 yen a share, up from 60 yen in fiscal 2023. Total dividends in fiscal 2024 exceeded 1 trillion yen. For fiscal 2025, Toyota has raised its dividend forecast to 90 yen per share, marking another step up. Over the past five years, Toyota’s dividends have grown at an annualized rate of 4.72%.
While the stock price has been under pressure, these dividends provide a cushion for income investors, showcasing Toyota's commitment to returning capital despite operational challenges.
Toyota’s Moves to Boost Productivity and Profits
Toyota is implementing several strategies to drive growth and strengthen earnings. The company is working to restore production to normal levels, targeting an annual output of 10 million units in the second half of the fiscal year. By optimizing inventory levels, Toyota aims to control sales incentives, ensuring vehicles are sold at competitive yet profitable prices. Additionally, it is enhancing its value chain by standardizing specifications and reducing parts complexity. Shortened lead times enable agile investment decisions, while in-house battery development strengthens its technological edge.
TM’s Hybrid Strategy Paying Off
Toyota’s focus on hybrids over battery-electric vehicles (BEVs) is proving effective. While rivals rushed to adopt BEVs, Toyota took a more measured approach and championed hybrids, citing their affordability and scalability as a better way to reduce emissions. This approach is paying off as BEV sales growth slows due to high prices and charging infrastructure challenges.
Hybrid sales surged in 2023, with conventional hybrids growing 67% and plug-in hybrids more than 80%, significantly outpacing BEV growth. Toyota’s RAV4, with hybrids making up half its sales, remains America’s top-selling SUV. The automaker plans to extend hybrid dominance, potentially transitioning models like the RAV4 and Camry entirely to hybrid variants. With hybrids now comprising 35-40% of Toyota’s sales—up from just 9% in 2018—Toyota expects these to exceed 50% of its total volume next year, securing its leadership in an evolving market.
Toyota’s EV Ambitions Also in Place
While hybrids remain the focus, Toyota is not ignoring the BEV market. The company is targeting the production of 1 million EVs annually by 2026. Though this is a reduction from its earlier goal of 1.5 million, it remains a bold target for TM who is not going big on EVs. To provide some context, TM sold only about 104,000 EVs last year. Currently, 77% of Toyota’s models have an electric version, and the company plans to fully electrify its Toyota and Lexus lineups by 2025. While its BEV market share remains modest, Toyota’s methodical approach may position it well as the market matures. The company’s plan to introduce a new series of solid-state batteries, aimed at extending the range of its EVs while reducing production costs, is praiseworthy.
What Do Estimates for Toyota Say
The Zacks Consensus Estimate for fiscal 2025 EPS implies a 14.4% decline year over year. But the consensus mark for fiscal 2026 EPS suggests growth of 10% year over year.
While the EPS estimates for fiscal 2025 moved south over the past 60 days, the same for fiscal 2026 is encouraging.
Image Source: Zacks Investment Research
TM Stock: Not a Buy Just Yet
Toyota’s long-term outlook remains strong, thanks to its hybrid dominance, ongoing EV advancements and shareholder-friendly policies. However, near-term concerns, including declining sales, rising costs and weak guidance, create uncertainties. Moreover, recent controversies, such as falsified safety certifications leading to production suspensions, add to investor caution.
Current shareholders may consider holding onto their positions, given Toyota’s robust dividend yield and strategic initiatives. For prospective investors, waiting for clearer signs of recovery—such as improved sales trends and stabilized margins—might be prudent, even though the stock is trading at a discount now.
Image: Shutterstock
Toyota Plunges 20% in 6 Months: At a Low P/E, is TM Stock a Buy Now?
Japan’s auto powerhouse, Toyota (TM - Free Report) , appears to be attractively valued now. TM is currently trading at a forward price/earnings of 7.6X, lower than the industry’s 8.01X as well as its own 5-year average of 9.34X. Toyota currently carries a Value Score of A.
Over the past six months, shares of TM have declined 20%, underperforming the auto sector’s growth of 22%. Currently hovering at $175/share, the stock is trading at more than 30% off its 52-week high.
With Toyota trading at a discount now, we delve into the fundamentals to evaluate if investors should park their cash in this automotive giant at this time.
Toyota’s Weak Fiscal 1H’25 Results & Outlook
After notching record highs in production, sales and profit in fiscal 2024, world’s #1 automaker in terms of sales volumes faced headwinds in the first half of fiscal 2025. In the last reported quarter, Toyota’s operating profit plunged 20% year over year to 1.16 trillion yen, marking the first profit decline for the company in two years, primarily due to soft sales in North America. Deterioration in sales volume and sales mix, along with increasing labor costs, hit the operating margins of North America.
In first half of fiscal 2025 (ended Sept. 30), Toyota’s consolidated global vehicle sales contracted 4% year over year to 4,556,000 units amid production disruptions. Net income for the first half of fiscal 2025 tumbled 26.3% year over year, with margins shrinking to 8.2%— down 3.6 percentage points on a yearly basis.
Toyota has lowered its fiscal 2025 vehicle sales projection to 10.85 million units from its previous forecast of 10.95 million units to 11.09 million units sold in fiscal 2024. Operating income is projected to be ¥4.3 trillion, indicating a contraction of 19.6% year over year. Investment in human resources and growth areas will be a big hit on the operating profits in the current fiscal. In the first half, TM spent 290 billion yen on these, and it plans to spend another 540 billion yen in the second half of fiscal 2025. Pretax profit is estimated to be ¥4.98 trillion, implying a decline from ¥6.96 trillion generated in fiscal 2024.
These challenges are not unique to Toyota. Its closest peer, Honda (HMC - Free Report) , also saw its operating profit decline 15% year over year in the second quarter of fiscal 2025 owing to weak market conditions in China. Honda cut its profit view, now expecting a 14% year-over-year drop in net profit for fiscal 2025 compared with a 9.7% fall guided earlier.
While Toyota has cut its operating profit and sales volume guidance, it reaffirmed its annual revenue forecast of 46 trillion yen and a net income of 3.57 trillion yen. While fiscal 2025 projected revenues imply modest growth, the net profit view suggests a 28% decline from fiscal 2024 levels.
TM’s Investor-Friendly Initiatives Offer Respite
Despite short-term struggles, Toyota continues to reward shareholders with its dividend policy. In fiscal 2024, the company paid total dividend of 75 yen a share, up from 60 yen in fiscal 2023. Total dividends in fiscal 2024 exceeded 1 trillion yen. For fiscal 2025, Toyota has raised its dividend forecast to 90 yen per share, marking another step up. Over the past five years, Toyota’s dividends have grown at an annualized rate of 4.72%.
Toyota Dividend Yield (TTM)
Toyota Motor Corporation dividend-yield-ttm | Toyota Motor Corporation Quote
While the stock price has been under pressure, these dividends provide a cushion for income investors, showcasing Toyota's commitment to returning capital despite operational challenges.
Toyota’s Moves to Boost Productivity and Profits
Toyota is implementing several strategies to drive growth and strengthen earnings. The company is working to restore production to normal levels, targeting an annual output of 10 million units in the second half of the fiscal year. By optimizing inventory levels, Toyota aims to control sales incentives, ensuring vehicles are sold at competitive yet profitable prices. Additionally, it is enhancing its value chain by standardizing specifications and reducing parts complexity. Shortened lead times enable agile investment decisions, while in-house battery development strengthens its technological edge.
TM’s Hybrid Strategy Paying Off
Toyota’s focus on hybrids over battery-electric vehicles (BEVs) is proving effective. While rivals rushed to adopt BEVs, Toyota took a more measured approach and championed hybrids, citing their affordability and scalability as a better way to reduce emissions. This approach is paying off as BEV sales growth slows due to high prices and charging infrastructure challenges.
Hybrid sales surged in 2023, with conventional hybrids growing 67% and plug-in hybrids more than 80%, significantly outpacing BEV growth. Toyota’s RAV4, with hybrids making up half its sales, remains America’s top-selling SUV. The automaker plans to extend hybrid dominance, potentially transitioning models like the RAV4 and Camry entirely to hybrid variants. With hybrids now comprising 35-40% of Toyota’s sales—up from just 9% in 2018—Toyota expects these to exceed 50% of its total volume next year, securing its leadership in an evolving market.
Toyota’s EV Ambitions Also in Place
While hybrids remain the focus, Toyota is not ignoring the BEV market. The company is targeting the production of 1 million EVs annually by 2026. Though this is a reduction from its earlier goal of 1.5 million, it remains a bold target for TM who is not going big on EVs. To provide some context, TM sold only about 104,000 EVs last year. Currently, 77% of Toyota’s models have an electric version, and the company plans to fully electrify its Toyota and Lexus lineups by 2025. While its BEV market share remains modest, Toyota’s methodical approach may position it well as the market matures. The company’s plan to introduce a new series of solid-state batteries, aimed at extending the range of its EVs while reducing production costs, is praiseworthy.
What Do Estimates for Toyota Say
The Zacks Consensus Estimate for fiscal 2025 EPS implies a 14.4% decline year over year. But the consensus mark for fiscal 2026 EPS suggests growth of 10% year over year.
While the EPS estimates for fiscal 2025 moved south over the past 60 days, the same for fiscal 2026 is encouraging.
Image Source: Zacks Investment Research
TM Stock: Not a Buy Just Yet
Toyota’s long-term outlook remains strong, thanks to its hybrid dominance, ongoing EV advancements and shareholder-friendly policies. However, near-term concerns, including declining sales, rising costs and weak guidance, create uncertainties. Moreover, recent controversies, such as falsified safety certifications leading to production suspensions, add to investor caution.
Current shareholders may consider holding onto their positions, given Toyota’s robust dividend yield and strategic initiatives. For prospective investors, waiting for clearer signs of recovery—such as improved sales trends and stabilized margins—might be prudent, even though the stock is trading at a discount now.
TM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here