Steel Dynamics Inc (STLD, Financial) has experienced a daily gain of 4.36% and a three-month gain of 11.84%. With an Earnings Per Share (EPS) (EPS) of 17.15, the question arises: Is the stock fairly valued? This article aims to provide a thorough valuation analysis of Steel Dynamics, encouraging readers to delve into the subsequent analysis.
Company Introduction
Steel Dynamics Inc operates scrap-based steel minimills, boasting roughly 16 million tons of annual steel production capacity. The company's operations are divided into three segments: steel operations, metals recycling operations, and steel fabrication operations. The steel operations segment generates the maximum revenue. A comparison between the stock price and the GF Value, an estimation of fair value, paves the way for a profound exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Summarizing GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
Steel Dynamics' stock is estimated to be fairly valued based on the GuruFocus Value calculation. With a current price of $106.57 per share, Steel Dynamics has a market cap of $17.70 billion. As the stock is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Steel Dynamics has a cash-to-debt ratio of 0.68, which is better than 62.86% of 587 companies in the Steel industry. GuruFocus ranks the overall financial strength of Steel Dynamics at 8 out of 10, which indicates that the financial strength of Steel Dynamics is strong.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. 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 91.88% of 591 companies in the Steel industry. Overall, the profitability of Steel Dynamics is ranked 9 out of 10, which indicates strong profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Steel Dynamics's 3-year average revenue growth rate is better than 91.9% of 580 companies in the Steel industry. Steel Dynamics's 3-year average EBITDA growth rate is 70.6%, which ranks better than 89.31% of 505 companies in the Steel industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Steel Dynamics's ROIC is 29.54 while its WACC came in at 11.56.
Conclusion
In conclusion, the stock of Steel Dynamics is estimated to be fairly valued. The company's financial condition is strong and its profitability is strong. 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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