Toyota Motors (NYSE:TM) has no desire to reach its U.S. motorists and investors in a way that will excite them like Tesla (NASDAQ:TSLA). As a result, Toyota stock is very cheap compared to TSLA stock. But, unfortunately, it may stay that way.
Just to give you a simple example, Toyota refuses to provide any information in its earnings reports in U.S. dollars. Moreover, most investors in Toyota American Depositary Receipts (ADRs) that are listed on the New York Stock Exchange are probably not aware that there are two ordinary shares for every one ADR.
And if that was not enough of a hurdle to calculate earnings, Toyota does not even provide an average exchange rate for its operations during the quarter or during the year.
Comparing Toyota and Nio’s U.S. Information
This is appalling. Even the U.S.-listed Chinese ADRs like Nio (NYSE:NIO) provide this information. For example, Nio recently released its second-quarter earnings with U.S. dollar figures and exchange rates used. It even provided a figure for earnings per American Depositary Share (ADS). Moreover, the report was easy to read and had calculations that investors want to know about, including vehicle margin and gross margin.
By contrast, Toyota released on Aug. 6 a report that was difficult to read and all in Japanese yen. Its fiscal Q1 report did not even include margin analysis. Now, even though Toyota Motors has a $187 billion market capitalization, it does not provide simple information.
Its ADRs are in a sponsored ADR program trading on the NYSE. But Toyota cannot seem to provide any information in U.S. dollars in its earnings report, nor does it provide earnings per ADR.
Translating Toyota’s Earnings into ADR Information
For example, the report says that Toyota’s earnings for the quarter ending June were 158.8 billion yen. Now the exchange rate was not provided. It turns out that it is about 106 yen to the U.S. dollar today.
But we don’t know the average during the quarter that Toyota uses in the calculation of its profits. Nevertheless, this works out to $1.5 billion (158.8 billion yen divided by 106). This is down 74% from the prior year.
Moreover, its earnings per share are in yen only. It was 56.87 yen per share. This was down 74% from the prior year’s earnings per ordinary share of 216.19 yen.
But to translate this number into per-ADR data we have to first divide it by the exchange rate and then multiply by 2. That is because there are two ordinary shares per ADR listed on the NYSE. That calculation works out to just $1.08 per share.
The Prospective Valuation on Toyota Stock
Toyota provided an outlook number for its earnings for the fiscal year ending March 2021. Here is all it provided: 762 billion yen. In addition, it appears that the number of ordinary shares has fallen from last year.
However, it is not 100% clear to me why it did not provide an exact number of shares outstanding. The company expects you to deduct the treasury shares from the total itself. My estimate, although I am not certain of this, is that there are now 2.766 billion shares outstanding. That is down from 2.846 billion shares.
But here is where things are tricky. You have to divide this number by 2, not multiply it by 2, to get the number of ADRs outstanding. Again that is because every two ordinary shares equal one ADR. So there are maybe 1.383 billion ADRs on an equivalent basis outstanding.
Therefore, to get the earnings per ADR, take 762 billion yen, divide it by the exchange rate of 106 yen per dollar, and then divide that answer by 1.383 billion. The answer is $5.20 per ADR in annual earnings.
That is down substantially from last year, taken from the company’s 20-F filing with the U.S. Securities and Exchange Commission. I estimate earnings were $13.84 per ADR (using the same exchange rate). This represents a decline of over 62% from last year.
What Should You Do With Toyota Stock?
Toyota’s own estimate is that it will make about $5.20 this year in earnings per ADR.
That seems very expensive to me for a company with a declining earnings profile. Moreover, Toyota still does not even have an all-electric car to offer its U.S. customers. In this regard, it is going to play catch-up at some point with U.S. investors and drivers.
This is not a stock I would buy at this point. Maybe at some point in the future, the company will get its act together. But right now, it is missing out on U.S. potential.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
