Should you invest in Toyota as sales overtake GM’s in the US?

Toyota Motor Corp (LON:TYT) stock edged lower by 1% on Tuesday despite news it outsold General Motors Co. (NYSE:GM) in the US in the three months ended 30th June. According to reports, the Japanese auto manufacturer sold 688,813 vehicles between April and June, 147 more than the US-based GM. 

The company’s shares are still up more than 37% in the last 12 months despite pulling back by more than 5% since 17th June. Toyota and the rest of the automobile industry could witness a significant rise in revenue in the coming months as the world continues to recover from the adverse effects of covid.

Is Toyota stock a buy in July 2021?

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From a valuation perspective, Toyota shares trade at an attractive P/E ratio of 12.17. However, close US peer GM stock trades at a relatively lower valuation multiple of 9.32 P/E. On the other hand, Ford Motor Co. (NYSE:F) trades at a P/E ratio of 14.74.

When we factor in earnings growth expectations for the next 12 months, Toyota trails its American rivals significantly, trading at a forward P/E of 14.34 compared to Ford’s 8.37 and GM’s equivalent of 8.58.

Therefore, despite the attractive valuation multiple of 12.17, the stock looks relatively overvalue compared to peers.

Technical overview: buy or sell Toyota shares in July 2021?

Technically, Toyota stock appears to have pulled back recently after reaching overbought conditions in the daily chart. But despite falling since mid-June, the stock price is yet to get to oversold conditions. Therefore, the current downward movement could continue to the foreseeable future.

Investors can target extended declines by shorting Toyota shares with a price target of $166.81 or lower at $161.46. The key resistance levels are $180.27 and $185.80.

Bottom line: the case for shorting Toyota shares

Although Toyota’s stock looks attractively valued at the current P/E ratio, its US rivals are more compelling. Furthermore, the recent pullback looks far from over paving the way for extended downward movement. 

Therefore, it would be best to short Toyota shares now or wait until the price drops further towards $165.00 before buying.

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