Just like Toyota Motor’s (NYSE:TM) 1990s advertising jingle “I love what you do for me, Toyota!,” investors have been loving how much Toyota Motor stock has done to boost the value of their portfolios over the past year.
Since last May, shares in the Japan-based global automaker have rallied by nearly 72%. These gains have handily beat those of other top-performing automotive stocks, like General Motors (NYSE:GM) and Stellantis (NYSE:STLA).
More strikingly, while TM is up by high double digits over the past year, during this same time frame shares in Tesla (NASDAQ:TSLA) are up by just 12.8%, and that’s only after TSLA’s latest supercharged rally that sparked a beginning of a rebound for the headwind-ladened EV maker.
Yet while you may regret not grabbing some Toyota shares twelve months ago, it’s not too late. Even after this big run-up, shares remain a strong opportunity.
A Closer Look at Toyota Motor Stock
Make no mistake. It’s not hope and hype that have driven TM stock’s outsized price performance. Nor has it been because of the market overreacting to what can be only moderately positive operating performance.
Rather, the convincing performance of Toyota Motor stock is a reasonable response to stellar fiscal results. For instance, for the nine months ending Dec. 31, 2023, Toyota (in Japanese yen terms) reported a 23.9% jump in sales, as well as earnings growth of over 102%.
Yes, a weakening yen has played a role in this. However, even when accounting for a declining yen, in dollar terms this still represents a fantastic level of growth for the automobile manufacturer.
A larger reason Toyota has performed so well has to do with the resurging popularity of gas-electric and plug-in hybrid vehicles relative to battery electric vehicles.
While initially seen as a risky move, this has instead proven to be a shrewd move for Toyota. It’s been a key factor in its strong growth in recent quarters, and this growth has not slowed down. As the New York Times reported in March, Toyota’s hybrid sales were up 83% during January and February.
Still on a Smooth Path to Higher Prices
Investors have not gone overboard reacting to Toyota’s recent growth. Still, one can counter that growth may be on the verge of slowing down.
After all, forecasts call for earnings growth not only to slow down, but for the bottom to decline from $22.68 to $22.18 per share during the fiscal year ending March 31, 2025.
Not only that, Toyota continues to be cautious in its planned EV production ramp-up. However, much suggests that these forecasts are conservative, and concerns about Toyota’s slow EV rollout are overblown.
As my InvestorPlace colleague Josh Enomoto recently argued, the popularity of hybrids among mileage and climate-conscious car buyers is likely to continue.
This strong hybrid sales growth could help prevent Toyota from experiencing the same sort of slump that competing automakers are experiencing. The key issues that have negatively affected EV demand, like low vehicle range and affordability, are still far away from being resolved.
This points to Toyota’s cautious approach being a wise move rather than one that will prove shortsighted down the road. Still reasonably-priced at around 10.3 times forward earnings, further growth could keep Toyota Motor stock on a smooth path to higher prices.
The Verdict: Come Along for the Ride
While I’m bullish on TM, it’s not as if I assume that another more than 75% move higher is in the cards for the automaker’s shares.
However, a moderate boost to earnings this fiscal year could produce stellar returns for this stock relative to the broad market. Besides the possibility of further gains on the table, TM’s semiannual dividend could also provide a boost for total returns.
Last year Toyota paid out dividends totaling around $4.50 per share. This represents about a 1.91% yield. While Toyota’s dividend is variable, another strong year could produce similarly-sized payouts.
Later this week, Toyota will release its full year fiscal 2023 results. You may want to wait until then to gather additional details on the company and its future prospects. That said, if earnings and updates prove promising, and the stock remains at reasonable prices, consider Toyota Motor stock still worth buying.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.