Toyota Stock Looks Set For An Upside

  • Toyota has upgraded its full year profit expectations amidst tumbling sales figures in the month of January 2016.
  • The automotive giant is on track to becoming the first Japanese company to report an annual profit figure of 3 trillion Japanese yen.
  • Investors can look forward to an increase in the Toyota stock price if the projections come to fruition.

Toyota Motor Corp (NYSE:TM) announced a record-high level of profits for the 9-month period ended 31st December 2015. This announcement comes on the back of good sales growth  in the regions of North America and China. In China, operating income is being said to have received a considerable boost as a result of an increase in production efficiency levels within the region. Furthermore, operating income also increased due to favourable exchange rates. In addition, increased sales in North America were attributable to cheaper gasoline prices  brought about by the fall in the price of crude oil.

However, it has not been all ‘plain sailing’ for the automotive company, which has also encountered numerous challenges over the past year. Most notably, for instance, the company had no choice but to halt production in Japan because of an explosion in one of its steel factories. The company produces an estimated 14,000 vehicles on a daily basis. Taking this into context, the abrupt closure of a steel factory that manufactures crucial components significantly hampered sales targets as a consequence. The company was also drawn into an airbag recall crisis, in which approximately 1.2 million vehicles of certain models were expected to be voluntarily recalled. The said vehicles, manufactured between March 2003 and 2007 were  to undergo inspections for air leaks and possible airbag inflator replacement.

The month of January 2016 was a tough period for the sale of cars, justified by the fact that other companies such as Ford Motor (NYSE:F) and Volkswagen (OTC:VLKAY) also experienced sales difficulties, albeit for different reasons. For Toyota, overall sales in the United States fell by 4.7%, partly because their product line struggled to perform. This is best exemplified by the fact that the Toyota Camry, which is the company’s bestselling vehicle in the United States, could only conjure up a 0.3% increase in sales to 26,848 units. This was not enough to compensate for the decline in sales of the other vehicles in the product line, such as the Toyota Corolla, which  dropped by more than 18% to 22,362 units. Overall, the company’s car division reported an 11% drop in sales.

Toyota said that it expects to record a staggering net profit of 2.27 trillion yen (the equivalent of £13.4 billion) for the year to March 2016. This profit figure is marginally higher than 2.25 trillion yen (£13.3 billion) that was quoted in the previous forecast.  The number one automobile maker also saw a 9.2% and 6.5% increase in the net profit  and operating profit figures respectively,  to 1.89 trillion yen and 2.31 trillion yen respectively, which is another milestone for the firm.

The positive announcement by the company can be a source of encouragement for investors who expect above satisfactory returns for their investment. The company has recorded earnings of 199.54 yen per share ($3.30 per ADR) for the quarter ended 31st December 2015, which was an improvement over the 189.77 yen per share ($3.33 per ADR) for the year-ago quarter.

TM stock chart

Source: Toyota stock price chart by amigobulls.com

Despite the gradual decline in Toyota stock price over the past year, I am still of the opinion that investors can be hopeful about the future of this stock. The positive profit projections, coupled with Toyota’s proven ability to offset declining sales in one region through sales increase in other regions will hold the company in good stead whilst moving forward. Ultimately, Toyota stock is brimming with potential for growth.

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  • I do not have any business relationship with the companies mentioned in this post.
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