Why Century Aluminum is the most expensive aluminum play

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Nov. 27 2019, Updated 1:29 p.m. ET

Run up in Century Aluminum share price

Century Aluminum (CENX) share price has more than tripled this year. It reached a new 52-week high after its 3Q results. We discussed Century Aluminum’s 3Q results in previous parts of this series. Let’s now analyze the relative valuation of CENX.

Century Aluminum trades at a premium to other aluminum plays

The previous chart shows the valuation of CENX relative to its peers. Let’s see how CENX is placed in terms of relative valuation.

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  • Price-to-earnings ratio (or PE ratio): This is the most common metric for valuation. As you can see in the previous chart, CENX has the highest PE ratio compared to its peers.
  • Enterprise value to earnings before interest, taxes, depreciation, and amortization (or EV/EBITDA): CENX has the highest forward EV/EBITDA as compared to other aluminum plays. This is the most common metric for stocks in the metal industry.
  • Price-to-sales ratio: Even while looking at price-to-sales ratio, CENX trades at a premium. Its price-to-sales ratio of 1.4 is the highest when compared to Alcoa (AA), Constellium N.V. (CSTM), and Kaiser Aluminum (KALU).

Constellium has the lowest valuation

CENX trades at a premium when compared to other listed aluminum plays. It is also important for investors to analyze the growth opportunities for a company. In the next part, we will analyze the outlook for CENX, as it will help us understand whether or not the premium valuations for CENX are justified. Please note CENX is currently a part of the SPDR S&P Metals and Mining ETF (XME).

Interestingly, if you look at the previous chart, Constellium trades at the lowest valuation as compared to other aluminum plays. Constellium recently completed a major acquisition in the U.S., which could be a game changer for the company.

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