Toyota
But before you speed off to buy shares, take a closer look at its numbers. Toyota expects its namesake brand to report a 2% decrease in Japanese sales for the current fiscal year. It appears that lower-priced competition and a lack of new models are taking their toll in its home market.
With the recent introduction of the new compact Belta and the 2006 releases of the fourth-generation Lexus LS and sixth-generation Camry, the downturn should be a short one. Still, the company expects to see only a 3% sales increase in 2006. If anything, these numbers reflect the hard reality of fierce competition in the automobile market.
Toyota is a technology leader, though -- the first company to mass-produce a gas/electric hybrid vehicle. It's already sold more than 500,000 hybrid Priuses, and the technology is a crucial part of its plans to address future environmental issues and fuel economy. Toyota introduced its second-generation hybrid in 2003, before GM and Ford could even introduce their first-generation models.
Toyota's results only confirm that the company is a class act. Its trailing annual operating margin is 8.3%. Only Honda
Analysts expect Toyota to produce only 5% annual earnings growth over the next five years, yet the stock sells for 16.7 times trailing earnings. However, I believe Toyota deserves a premium to its peers, given its profitably and its growing size. It may become the world's largest car manufacturer in 2006. In a very capital-intensive industry, it has the resources to expand and innovate.
Nonetheless, potential Toyota investors should consider the risk of an economic recession. True, Toyota's stock has just crested the $100 mark, but the same shares were fetching $41.17 as recently as April 2003. Toyota's got a lot going for it, but with only 5% annual earnings growth ahead, the stock's hardly a bargain by my standards.
Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Click here to see The Motley Fool's disclosure policy.
