Steel Dynamics Inc (STLD, Financial) experienced a daily loss of 1.81%, and a 3-month gain of 2.86%. Its Earnings Per Share (EPS) stand at 17.15. The question arises: Is the stock fairly valued? This article provides an in-depth analysis of Steel Dynamics' valuation, offering insights that could guide investment decisions. We encourage you to read on.
Company Overview
Steel Dynamics operates scrap-based steel minimills with an annual steel production capacity of approximately 16 million tons. The company's segments include steel operations, metals recycling operations, and steel fabrication operations. The steel operations segment generates the maximum revenue. The current stock price is $103.16, which is close to its GF Value of $100.31, indicating a fair valuation. This sets the stage for a deeper exploration of the company's value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally trade at. 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.
According to GuruFocus' valuation method, Steel Dynamics (STLD, Financial) appears to be fairly valued. The current price of $103.16 per share and a market cap of $17.10 billion align closely with the GF Value Line. 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.
Financial Strength
Investing in companies with poor financial strength presents a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Steel Dynamics has a cash-to-debt ratio of 0.68, ranking better than 62.9% of 593 companies in the Steel industry. The overall financial strength of Steel Dynamics is 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Steel Dynamics has been profitable 9 out of 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%, ranking better than 91.89% of 592 companies in the Steel industry. GuruFocus ranks Steel Dynamics' profitability at 9 out of 10, indicating strong profitability.
Steel Dynamics's 3-year average revenue growth rate is better than 91.92% of 582 companies in the Steel industry. Its 3-year average EBITDA growth rate is 70.6%, ranking better than 89.31% of 505 companies in the Steel industry, indicating strong growth.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) can provide insights into its profitability. A higher ROIC than WACC implies the company is creating value for shareholders. For the past 12 months, Steel Dynamics's ROIC is 29.54, and its WACC is 11.83, indicating value creation.
Conclusion
In conclusion, 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 89.31% of 505 companies in the Steel industry. For more information about Steel Dynamics stock, check out its 30-Year Financials here.
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