As Toyota shares have been creamed over the past weeks - the American Depository Receipts have plunged 17% in less than three weeks - some analysts are suggesting a bottom is in and people should buy the stock.
While I agree with analysts saying that Toyota will recover from this disastrous string of recalls - getting even worse today - I think the stock had gotten ahead of itself well before these problems. Granted, I think Toyota is a fantastic brand with better than the industry average growth ahead of it, but at $75 and up, people are pricing it as if a return to 2005-2007 earnings levels are about to return. I find that to be a sub-50% probability, as the ability to securitize auto loans will be permanently impaired from here on out, reducing the ability of people to finance cars that equate to 75% and up of their annual income...
Citigroup analyst Noriyuki Matsushima for one, has a $99.77 target for the ADRs. But a look above at peak earnings shows that to be a PE multiple of nearly TWENTY, on earnings that will be very tough to get back to. (The the exchange rate fluctuates, I used a 100-1 ratio for Yen to dollars).
I'm definitely not overly pessimistic on the shares, especially if they can get back to the $2.50 range on their dividend. But I think the recall lead to a correcting that the shares needed anyway.
How 'bout this classic beauty of a Toyota?
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