Steel Dynamics Inc (STLD, Financial) has recently shown a daily gain of 4.52% and an impressive 3-month gain of 26.65%, paired with an Earnings Per Share (EPS) of 15.59. These figures prompt the question: is the stock modestly overvalued? The following analysis aims to provide a clear answer, examining the company's financials, growth prospects, and intrinsic value as determined by the GF Value.
Company Overview
Steel Dynamics Inc operates a series of scrap-based steel minimills, boasting an impressive annual steel production capacity of roughly 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 is the most significant revenue generator. A critical aspect of our analysis is the comparison between the current stock price of $124.52 and the GF Value of $100.61, which suggests an estimation of fair value. This comparison sets the stage for a deeper dive into the intrinsic value of Steel Dynamics.
Understanding GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock, calculated through a method exclusive to GuruFocus. It is based on historical trading multiples, an adjustment factor reflecting the company's past performance and growth, and future business performance estimates. The GF Value Line indicates the fair trading value of the stock. If the stock price is significantly above this line, it is considered overvalued, and its future return may be poor. Conversely, if the stock price is below the GF Value Line, it may indicate a higher future return. At a market cap of $20.10 billion, Steel Dynamics is currently assessed as modestly overvalued.
Because Steel Dynamics is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
Assessing a company's financial strength is crucial to sidestep the risk of permanent capital loss. Indicators such as the cash-to-debt ratio, which stands at 0.73 for Steel Dynamics, provide insights into financial robustness. Ranking better than 64.56% of its peers in the Steel industry, the company's overall financial strength is rated as strong, with a score of 8 out of 10.
Profitability and Growth
Investing in profitable companies like Steel Dynamics, which has seen profitability for 9 out of the past 10 years, generally carries less risk. With annual revenues of $19.40 billion and an operating margin surpassing 91.42% of the industry, the company's profitability is deemed strong. Growth is also a pivotal factor, with Steel Dynamics' 3-year average annual revenue growth rate of 36.5% outperforming 91.67% of its industry counterparts. The EBITDA growth rate is similarly impressive at 70.6%, ranking better than 89.15% of the industry.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another way to gauge profitability. Steel Dynamics' ROIC of 27.94 indicates efficient cash flow generation relative to the capital invested, significantly exceeding its WACC of 11.91. This suggests that the company is creating value for its shareholders.
Conclusion
In conclusion, Steel Dynamics (STLD, Financial) appears to be modestly overvalued in the market. Despite this, the company's financial condition and profitability are robust, and its growth prospects are promising, ranking favorably within the Steel industry. For a more detailed understanding of Steel Dynamics' financials, interested investors can explore the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
