Toyota

Despite Toyota's stock price dropping $20 per stock from a bit above 90 to a little above $70 several weeks back, it has not seen as much of a selling craze as I'd expect. So here's why we cannot buy Toyota right now.

1) We have no real clue how much money they're losing.
8.5 million vehicles recalled. How much are they spending per vehicle? 3000 dollars? That translates into 24 billion. Plus litigation fees, and a lot of other potential losses, we could only expect the worst.

2) Sharp equity losses for the next few quarters.
Taking losses is a given, but what is the stock valuation is currently at? As of March 2009, stockholder's equity totals 113 billion. That translates to approximately 64 $/share. Taking a multi-billion dollar hit, is going to push the value down even further.

Considering that everyone expects the company to take losses, the price per book should realistically be less than 1, but we have not seen the case. That means some people still thinks that Toyota could be making money in the short term.

3) Bleak outlook for the next few years.
Would you drive a new Toyota Camry next year?

4) Competition
Why buy Toyota, when you could get other troubled automakers for cheap. GM is coming out of bankruptcy, Ford is gaining momentum every day.

5) Non adjusted expectation
No matter how mild the financial hit is going to be, Toyota is bound to lose money, and when the results come out, you could almost guarantee a drop in stock prices due to adjusted outlook. For some reason this has never ceased to amaze that the stock price didn't adjust to the expectations as far as its fundamentals indicate.



It might take years before Toyota gets back to its current foothold on the auto industry. But don't short it on my account. People might be willing to forgive the world largest automaker overnight, but I don't see it happening.