The industry has an average P/E value of 14.5, which makes Toyota Motor Corporation (ADR) (NYSE:TM) and Honda Motor Co Ltd (ADR) (NYSE:HMC) overvalued. While being undervalued, Nissan’s net income growth over the past three years has been phenomenal as it outstrips the competition by miles. However, the PEG ratio provides a more accurate measure of the company’s valuation since growth is factored in as well and Honda’s PEG ratio suggests that it has the most favorable valuation of the three.
Honda Motor Co Ltd (ADR) (NYSE:HMC), Nissan, and Toyota Motor Corporation (ADR) (NYSE:TM) are widely renowned for their quality products. In case of Toyota, the company is already the world’s largest manufacturer of cars and is past its vehicle recall troubles. The company’s strong brand in emerging markets gives it a lead for sales there. Nissan and Honda Motor Co Ltd (ADR) (NYSE:HMC), on the other hand, are undoubtedly on the right track with their entrance and expansion into the developing markets, but they do not have the brand quality attached with Toyota. In case of Nissan, the company also does not have a flagship low-end car model which can rival Corolla or Civic.
For the remainder of 2013, Toyota is best suited to capitalize on the weaker yen and cost-reduction methodology. That being said, the stock does look over-priced by the measure of P/E, but the projected increase in sales due to competitively priced car models are expected to lower the company’s valuation going forward.
Awais Malik has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Strong Sales in July Call for a Look at Japanese Car Stocks originally appeared on Fool.com and is written by Awais Malik.
Awais is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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