General Motors vs. Toyota: Which Auto Manufacturing Stock is a Better Buy?

Headquartered in Toyota, Japan, Toyota Motor Corporation (TM) designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories. It operates in Automotive; Financial Services; and All Other segments. In comparison, General Motors Company (GM) in Detroit, Mich., designs, builds and sells cars, trucks, crossovers, and automobile parts worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.

Even though the global semiconductor shortage and supply chain crisis have been affecting the auto manufacturing industry, massive government and private investments to boost semiconductor production should gradually ease the problem and help auto manufacturers resume production. Furthermore, traditional automakers might be more beneficial based on their broad portfolio of vehicles and market dominance. According to a report by Market Research Future, the automotive industry is expected to grow at a 4.5% CAGR between 2021 - 2028. Therefore, both TM and GM should benefit.

TM has gained 20.1% in price over the past six months, while GM has returned 17.9%. However, GM’s 7.5% gains over the past month are higher than GM’s 4.1% returns. And GM is the clear winner with 16.1% gains versus TM’s 1.9% returns in terms of their past three months’ performance.

Click here to check out our Automotive Industry Report for 2021

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On October 29, 2021, TM announced a new $461 million investment to support Toyota Kentucky's transformation plans. It is a series of changes and projects that will boost the Georgetown plant's transformation to meet shifting customer demand, reduce its carbon footprint and advance future capabilities.

On October 6, 2021, GM unveiled Ultra Cruise, an all-new, advanced driver-assistance technology and significant next step in the company's journey to enable its goal of zero crashes, zero emissions, and zero congestion. Doug Parks, GM executive vice president of Global Product Development, Purchasing, and Supply Chain, said, "Ultra Cruise is not just a game-changer in terms of what it enables--a door-to-door hands-free driving experience--but a technological one as well."

Recent Financial Results

TM’s operating revenue increased 36.1% year-over-year to ¥15,481.30 billion ($135.88 billion) for its fiscal third quarter ended September 30, 2021. The company’s operating income grew 236.1% year-over-year to ¥1,747.47 billion ($15.34 billion), while its net income came in at ¥1,565.06 billion ($13.74 billion), representing a 148% year-over-year increase. Also, its adjusted EPS came in at ¥109.28, up 144.1% year-over-year.

GM’s revenues decreased 24.5% year-over-year to $26.78 billion for its fiscal third quarter, ended September 30, 2021. The company’s adjusted EBIT declined 44.7% year-over-year to $2.92 billion, while its net income came in at $2.42 billion, representing a 40.2% year-over-year decrease. Also, its adjusted EPS was $1.52, down 46.3% year-over-year.

Past and Expected Financial Performance

TM’s total assets and EBIT have grown at CAGRs of 5.6% and 10.1%, respectively, over the past three years. Analysts expect TM’s revenue to increase 10.6% in the current year and 7.4% next year. The company’s EPS is expected to grow 37.8% in the current year and 18.7% next year. Furthermore, its EPS is expected to grow at a rate of 22.2% per annum over the next five years.

In comparison, GM’s total assets and EBIT have grown at CAGRs of 1.9% and 9.5%, respectively, over the past three years. The company’s revenue is expected to increase 4% in the current year and 19% next year. Its EPS is expected to grow 35.1% in the current year and 2% next year. Also, GM’s EPS is expected to grow at a rate of 14.7% per annum over the next five years.

Profitability

TM’s trailing-12-month revenue is 2.15 times GM’s. TM is also more profitable, with a gross profit and net income margins of 19.87% and 10.03%, respectively, compared to GM’s 14.55% and 8.50%.

However, GM’s ROE and ROTC of 20.26% and 4.63%, respectively, are higher than GM’s 13.60% and 4.49%.

Valuation

In terms of forward non-GAAP P/E, GM is currently trading at 9.58x, which is higher than TM’s 9.12x. However, TM’s 1,49x forward EV/S ratio  is slightly higher than GM’s 1.48x.

POWR Ratings

Both TM and GM have an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

TM has a B grade for Sentiment, consistent with analysts’ expectations that its EPS and revenue will grow significantly in the coming months. In comparison, GM has a C grade for Sentiment, which is in sync with analysts’ expectations that its EPS and revenue will increase modestly in the near term.

Moreover, TM has a B grade for Stability, which is in sync with its 0.63 beta, while GM has a Stability grade of C, in sync with its 1.21  beta.

Of the 62 stocks in the Auto & Vehicle Manufacturers industry, TM is ranked #22. In contrast, GM is ranked #35.

Beyond what I have stated above, we have also rated the stocks for Stability and Sentiment. Click here to view all the TM ratings. Also, get all the GM ratings here.

The Winner

The auto manufacturing industry is expected to grow with increasing demand for zero-emission vehicles. While both TM and GM are expected to gain in the long run, neither of the stocks look like good bets right now, considering their weak near-term growth prospects. So, we think Investors should wait for better entry points in these stocks.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Auto & Vehicle Manufacturers industry here.

Click here to check out our Automotive Industry Report for 2021

TM shares were trading at $184.94 per share on Monday afternoon, up $0.54 (+0.29%). Year-to-date, TM has gained 21.36%, versus a 26.17% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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