Steel Dynamics Inc (STLD, Financial) witnessed a daily gain of 3.93%, despite a 3-month loss of -1.58%. With an Earnings Per Share (EPS) of 17.15, the question arises - is the stock fairly valued? We will explore this question through a meticulous valuation analysis. Keep reading to discover more.
Company Overview
Steel Dynamics operates scrap-based steel minimills and boasts an annual steel production capacity of approximately 16 million tons. The company's operations are divided into three segments: steel operations, metals recycling operations, and steel fabrication operations. The steel operations segment contributes the maximum revenue. The current stock price stands at $102.53, with a market cap of $17 billion, and the GF Value is estimated at $100.28, indicating that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it indicates that the stock is either overvalued or undervalued, which can influence its future return.
According to the GF Value calculation, Steel Dynamics (STLD, Financial) appears to be fairly valued. This suggests that 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 strong financial strength is crucial to mitigate the risk of permanent capital loss. Steel Dynamics has a cash-to-debt ratio of 0.68, which ranks better than 62.5% of 592 companies in the Steel industry. This strong balance sheet earns Steel Dynamics a financial strength rank of 8 out of 10 from GuruFocus.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, is typically safer. Steel Dynamics has been profitable 9 out of the past 10 years, with an operating margin of 18.96%, ranking better than 91.6% of 595 companies in the Steel industry. This strong profitability earns Steel Dynamics a profitability rank of 9 out of 10 from GuruFocus.
Growth is a critical factor in company valuation. Steel Dynamics's 3-year average revenue growth rate is better than 91.64% of 586 companies in the Steel industry. Its 3-year average EBITDA growth rate is 70.6%, which ranks better than 88.78% of 508 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Steel Dynamics's ROIC is 29.54 while its WACC came in at 11.74, indicating that the company is creating value for its shareholders.
Conclusion
In conclusion, Steel Dynamics (STLD, Financial) appears to be fairly valued. The company's financial condition is strong, its profitability is robust, and its growth ranks better than 88.78% of 508 companies in the Steel industry. To learn more about Steel Dynamics stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
