Toyota Motors' (TM  ) stock closed slightly higher following its better-than-expected Q1 results. Toyota is the world's largest automaker in terms of cars sold, so its earnings report gives insight into the state of the global economy.

Its Q1 report basically confirms what we are seeing in other places. There is strong demand due to the economy reopening, accelerating growth, and stimulus payments, however the biggest challenge is on the supply side as the chip shortage is hindering automakers' efforts to meet this demand with the appropriate levels of supply.

Inside the Numbers

In Q1, Toyota posted earnings per share of $5.18 which came in better than analysts' expectations of $3.45. This was also a major improvement from last year's EPS of $0.45.

Revenue came in at $72.6 billion, topping expectations of $70.9 billion. Notably, this marked a new record for quarterly revenue and was an 11% improvement from the previous year. The bulk of Toyota's revenues came from its automotive segment, while financial services are the other major contributor. Automotive revenue increased 13.2% to $66.5 billion, while financial services revenue decreased 1.4% to $5.1 billion.

Currently, Toyota has $29.6 billion in cash with $108.9 billion in long-term cash. One concern is that Toyota has seen some deterioration in margins over the past decade. Net margins have dropped from 8% to 5%, while operating margins declined from 10% to 7%.

In terms of guidance, Toyota anticipates the favorable environment for car sales to continue in 2022 as it projects sales of 10.5 million units, an increase from 9.9 million in 2021. Revenue is expected to grow 10.2%, and operating income by 13.8%.

Stock Price Outlook

Auto stocks are essentially cyclical stocks. And, Toyota is trading like a lot of cyclical stocks. The stock has posted impressive performance over the past year, yet it's been mostly in line with earnings growth. Thus, its valuation remains attractive.

Currently, Toyota has a price-to-earnings ratio of 10.8 which is significantly cheaper than the S&P 500's (SPY  ) price-to-earnings ratio of 34. This is likely due to investors seeing the recent gain in earnings as being transitory rather than a "new normal".

However, one theme of the past year has been the constant underestimation of the economy's strength and staying power. Another reason to be bullish on Toyota is that the supply constraint may result in a longer, more extended cycle.