Steel Dynamics Inc (STLD, Financial) witnessed a day's loss of 2.37%, with a 3-month gain of 6.11%. The company reported an Earnings Per Share (EPS) of 17.15. But is the stock fairly valued? This article delves into the valuation analysis of Steel Dynamics, providing readers with insightful information to make informed investment decisions.
Understanding Steel Dynamics Inc (STLD, Financial)
Steel Dynamics operates scrap-based steel mini-mills, boasting an annual steel production capacity of roughly 16 million tons. The company's operations are segmented into steel operations, metals recycling operations, and steel fabrication operations, with the steel operations segment generating maximum revenue. The current stock price stands at $102.09, and with a market cap of $16.90 billion, it's crucial to compare this with the GF Value, an estimate of fair value.
Deciphering the GF Value
The GF Value is a unique computation of a stock's intrinsic value, considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Steel Dynamics (STLD, Financial) appears to be fairly valued, according to GuruFocus Value calculation. At its current price of $102.09 per share and the market cap of $16.90 billion, Steel Dynamics stock seems to be trading at its intrinsic value. As Steel Dynamics is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of Steel Dynamics
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before deciding to purchase shares. Steel Dynamics has a cash-to-debt ratio of 0.68, which ranks better than 64.26% of companies in the Steel industry. The overall financial strength of Steel Dynamics is 8 out of 10, indicating robust financial health.
Profitability and Growth of Steel Dynamics
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Steel Dynamics has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $20.50 billion and Earnings Per Share (EPS) of $17.15. Its operating margin is 18.96%, which ranks better than 91.25% of companies in the Steel industry. Overall, GuruFocus ranks the profitability of Steel Dynamics at 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Steel Dynamics is 36.5%, which ranks better than 91.6% of companies in the Steel industry. The 3-year average EBITDA growth is 70.6%, which ranks better than 89.33% of companies in the Steel industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Steel Dynamics's return on invested capital is 29.54, and its cost of capital is 11.47.
Conclusion
In summary, the stock of Steel Dynamics (STLD, Financial) appears to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 89.33% of companies in the Steel industry. To learn more about Steel Dynamics stock, you can check out its 30-Year Financials here.
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