Steel Dynamics Inc (STLD, Financial) experienced a daily loss of -1.87%, with a 3-month gain of 7.78%. The company has an Earnings Per Share (EPS) of 17.15. This article seeks to answer the question: Is Steel Dynamics (STLD) fairly valued? Let's delve into the valuation analysis of this stock.
Introducing Steel Dynamics
Steel Dynamics Inc operates scrap-based steel minimills, generating maximum revenue from its steel operations segment. With an annual steel production capacity of roughly 16 million tons, the company's segments include steel operations, metals recycling operations, and steel fabrication operations. The stock price stands at $102.89, and the GF Value, an estimation of fair value, is $100.42. This comparison provides a foundation for a more profound exploration of the company's value.
Understanding the GF Value of Steel Dynamics (STLD, Financial)
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value at which the stock should 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), with a market cap of $17 billion, shows every sign of being fairly valued at its current price of $102.89 per share. As the stock is fairly valued, the long-term return is likely to be close to the rate of its business growth.
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Examining the Financial Strength of Steel Dynamics
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, reviewing the financial strength of a company is crucial before investing. Steel Dynamics has a cash-to-debt ratio of 0.68, which is better than 64.18% of 564 companies in the Steel industry. This strong financial strength, ranked 8 out of 10 by GuruFocus, is reflected in the company's debt and cash over the past years:
Profitability and Growth of Steel Dynamics
Companies consistently profitable over the long term offer less risk for investors. Steel Dynamics, with an operating margin of 18.96%, has been profitable 9 out of the past 10 years. This performance ranks better than 92.09% of 594 companies in the Steel industry, indicating strong profitability .
Growth is a crucial factor in a company's valuation. Steel Dynamics's 3-year average revenue growth rate is better than 91.6% of 583 companies in the Steel industry. Its 3-year average EBITDA growth rate is 70.6%, which ranks better than 89.31% of 505 companies in the Steel industry.
ROIC vs WACC Analysis
Comparing a company's return on invested capital and the weighted cost of capital offers another perspective on profitability. 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. For the past 12 months, Steel Dynamics's ROIC is 29.54, and its WACC is 11.7.
Conclusion
In conclusion, Steel Dynamics (STLD, Financial) stock shows every sign of being fairly valued. The company's financial condition is strong, its profitability is robust, and its growth ranks better than 89.31% of 505 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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