What are the key financial metrics for Nucor investors?
After analyzing the historical facts and key operations for Nucor we’ll now discuss the financial performance of a company. We’ll look at key ratios to understand the financial health of the company. There are the five-year average sales growth rate and Return on Assets (or ROA) that will be used to compare Nucor (NUE) to other steel companies. We have selected ArcelorMittal (MT), U.S. Steel Corporation (X), and Reliance Steel & Aluminum (RS) for our analysis. Apart from these companies, the SPDR S&P Metals and Mining ETF (XME) is an alternate way to invest in the steel sector.
- Sales growth – Sales growth remains a key driver for steel companies. The sector still hasn’t fully recovered from the recession of 2008. Sales growth is basically a multiple of average selling prices and steel shipments. As you can see in the previous graph, Nucor has a negative Compounded Average Growth Rate (or CAGR) of ~4%. This is better than the industry average. The other bigger competitors like ArcelorMittal are still way beyond their pre-crisis sales figures.
- Return on Assets – For an industry with heavy capital requirements, investors should also look at its ROA. We look at the five-year average ROA. Averaging removes any sudden spurt in ratios and presents a better picture. This metric is a reflection of the operational superiority of a company. A company should invest shareholder capital in productive assets to maximize their returns. As you see in the previous graph, only Nucor and Reliance Steel & Aluminum are generating positive ROA. This is because a lot of steel companies are still making losses.
On most of the metrics, Nucor displays above average performance. We’ll look at the possible reasons for this as well as its impact on valuation and the share price of Nucor in the next sections.