Does Toyota Stock’s 9% Monthly Jump Reflect Its True Value After New EV Strategy?

• Thinking about investing in Toyota Motor and wondering if the stock is offering good value right now? Let’s take a closer look beyond just headline prices.
• Recently, Toyota shares have notched up a 9.1% gain over the past month and are sitting 20.3% higher than a year ago, highlighting sustained growth and changing investor sentiment.
• These price moves have not come out of nowhere. Toyota has recently made headlines by accelerating its EV strategy and signing new supply chain partnerships, which are seen as signals of its forward momentum in the global auto market.
• When we crunch the numbers, Toyota earns a 3 out of 6 on our value score, indicating it is undervalued in half of our major checks. We will dig into how that score is calculated using classic, and arguably limited, valuation tools, with an even smarter way to assess value waiting for you at the end of the article.

Toyota Motor delivered 20.3% returns over the last year. See how this stacks up to the rest of the Auto industry.

Approach 1: Toyota Motor Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's true worth by projecting its future cash flows and then discounting them back to today's value. For Toyota Motor, this approach uses the 2 Stage Free Cash Flow to Equity method, focusing on how much cash the business can actually generate for shareholders over time.

Currently, Toyota's latest twelve-month Free Cash Flow sits at negative ¥467.3 Billion, reflecting a weaker recent cash generation. Analyst forecasts anticipate a strong rebound, with Free Cash Flow projected to reach ¥2.48 Trillion by 2030. Ten-year projections (some of which are extrapolated) show an overall upward trend in the company's ability to generate cash. These projections are all in Japanese Yen (¥).

Using these cash flow outlooks and discounting them to present value yields an intrinsic value of ¥1,749 per share. However, this is about 80.7% lower than Toyota's current share price. This means the DCF model suggests the stock is significantly overvalued right now.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Toyota Motor may be overvalued by 80.7%. Discover 865 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Toyota Motor.

Approach 2: Toyota Motor Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is often the go-to valuation metric for profitable companies like Toyota Motor. It tells investors how much they are paying for each yen of the company’s earnings. The PE ratio is especially meaningful here because Toyota is consistently profitable, making this metric a good measure for assessing whether the stock is priced fairly relative to its earnings power.

It's important to remember that a company's "normal" or "fair" PE ratio should reflect not only its growth prospects, but also its risk profile. Fast-growing and lower-risk firms generally command higher PE ratios, while slower-growing or riskier ones tend to trade at discounts.

Right now, Toyota Motor trades at a PE ratio of 8.90x. That is below both the average for its industry at 18.13x and the peer average at 9.76x. On the surface, this might make the stock look cheap compared to others in the auto sector.

However, Simply Wall St's proprietary "Fair Ratio" provides a more tailored comparison. This Fair Ratio, which is 16.43x for Toyota Motor, accounts for factors unique to the company such as its earnings growth, profit margins, market capitalization, and the risks it faces. Unlike simple peer or industry comparisons, the Fair Ratio gives a more complete sense of what a reasonable valuation should be for Toyota right now.

Comparing Toyota's current PE ratio of 8.90x to its Fair Ratio of 16.43x shows the stock is trading significantly below what would be expected based on its own fundamentals and outlook. This suggests that despite its recent performance, Toyota may still offer good value for long-term investors.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Toyota Motor Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your own interpretation of a company's story translated into a set of forecast numbers, such as future revenues, profit margins, and fair value, based on what you believe about the business and its future.

Narratives help bridge the gap between financial models and real-world events by tying Toyota Motor’s business developments and outlook directly to an up-to-date value estimate. Instead of just relying on industry averages or analyst consensus, you can use Narratives to shape your view and see how changes in strategy, product launches, or market challenges may impact valuation in real time.

On Simply Wall St's Community page, millions of investors use Narratives as an accessible tool to compare their fair value estimates to the current market price, giving them timely signals for when to buy or sell. Each Narrative updates automatically as new earnings or breaking news arrive.

For example, some investors bullish on Toyota’s battery innovation and global expansion might assign a fair value of ¥3,400 per share. More cautious investors, wary of production risks and market competition, may prefer a lower figure near ¥2,400. Your Narrative reflects your unique perspective and investment strategy.

Do you think there's more to the story for Toyota Motor? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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