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Why Shares of Toyota Motor Corporation Fell Over 13% in February

By John Rosevear – Mar 6, 2016 at 9:05AM

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Like most of its rivals, Toyota's shares have had a tough ride so far in 2016. Automakers are cyclical businesses, and it appears that some investors are concerned that the cycle may be headed downward before long.

Toyota CEO Akio Toyoda, speaking at an event on Jan. 31. Investors worried about a slowing global economy sold off the Japanese auto giant's shares in February. Image source: Toyota.

What: Shares of Toyota Motor Corporation (TM 1.57%) fell over 13% in February. The Japanese auto giant's dollar-denominated shares on the New York Stock Exchange ended the month at $104.10, down 13.25% from the company's $120 opening price on Feb. 1.

So what: Most of Toyota's rivals saw their shares take big hits in January, as analysts concluded that the U.S. auto market was probably near its peak while China's appears to be retrenching. Toyota was one of just a few automakers that managed to avoid a major drop in January, but the sentiment caught up with the Japanese giant last month. 

Automakers are cyclical businesses. Their sales tend to rise and fall with economic cycles, for a reason that's probably obvious: People (and businesses) are less likely to buy new cars and trucks when they're worried about their job or business prospects. 

If the world's major new-car markets are peaking or declining, that makes it likely that the automakers' profits will shrink -- or at least, that growth will be scarce for a while. Hence the sell-off in auto stocks. 

But long-term Toyota shareholders need not be too worried. While the last recession saw some big-name automakers crash into bankruptcy court, nobody seriously thinks that Toyota is in danger. 

The company's credit rating and financial strength are among the best in the business, and CEO Akio Toyoda has run the company founded by his great-grandfather with a deft and careful touch since taking the top job in 2009. Toyota is well-positioned to ride out a recession without too much fuss.

Now what: Investors await Toyota's full-year report for its fiscal 2016, which ends on March 31 -- and maybe more importantly, its guidance for the next year. In its third-quarter earnings report on Feb. 7, Toyota reiterated its full-year guidance: It expects net revenue of 27.5 trillion yen ($244.6 billion at current exchange rates), operating income of 2.8 trillion yen ($24.6 billion), income before income taxes of 2.98 trillion yen ($26.2 billion), and net income of 2.27 trillion yen ($19.93 billion).

John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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