Steel Dynamics (STLD, Financial) experienced a daily gain of 1.88% and a 3-month loss of -0.9%. With an Earnings Per Share (EPS) (EPS) of 17.15, the question arises: is the stock fairly valued? This analysis aims to answer this question and provide insights into the intrinsic value of Steel Dynamics. To fully appreciate the valuation, let's delve into the details.
Company Overview
Steel Dynamics Inc operates scrap-based steel minimills 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, with the steel operations segment generating the most revenue. The company's stock price is currently $103, with a GF Value of $99.86, indicating a fair valuation. The market cap stands at $17.10 billion.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the stock's fair trading value. 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.
Based on the GF Value, Steel Dynamics (STLD, Financial) appears to be fairly valued. This means that 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 Analysis
Investing in companies with poor financial strength poses a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Factors such as the cash-to-debt ratio and interest coverage offer insights into this strength. Steel Dynamics has a cash-to-debt ratio of 0.68, ranking better than 62.18% of 587 companies in the Steel industry. Overall, the financial strength of Steel Dynamics is strong, with a score of 8 out of 10.
Profitability and Growth
Investing in profitable companies carries less risk. Companies with high profit margins typically offer better performance potential than those with low profit margins. Steel Dynamics has been profitable for 9 years over the past 10 years. During the past 12 months, the company had revenues of $20.50 billion and an EPS of $17.15. Its operating margin of 18.96% is better than 92.04% of 603 companies in the Steel industry. Overall, GuruFocus ranks Steel Dynamics's profitability as strong.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders. The 3-year average annual revenue growth rate of Steel Dynamics is 36.5%, ranking better than 91.62% of 585 companies in the Steel industry. The 3-year average EBITDA growth rate is 70.6%, ranking better than 88.95% of 507 companies in the Steel industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Steel Dynamics's ROIC was 29.54, while its WACC came in at 11.96.
Conclusion
Overall, 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 88.95% of 507 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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