Slide in Alcoa stock
Alcoa (AA) closed at $34.40 on March 31, 2017, rising 2.7% from the previous day’s close. Though Alcoa is trading at a year-to-date rise of 23.7%, it’s lost some of its gains over the last month.
More specifically, Alcoa saw a closing high of $38.56 on February 14, and it’s since shed 12.2% of its market capitalization.
Arconic’s stake sale
The slide in Alcoa stock coincides with Arconic’s (ARNC) stake sale in the company. On February 15, Arconic announced that it had sold 60% of its stake in Alcoa and raised ~$890 million. Looking at the money raised, we can arrive at an average transaction price of $38.11 per share—very close to Alcoa’s 2017 highs.
Since Alcoa is a pure-play commodity producer (CENX) (RIO), its fortunes are closely tied to commodity prices. Notably, the sentiment in aluminum markets was subdued at the beginning of 2016. However, commodities, including aluminum, saw upward price action after Donald Trump won the US presidential election (DIA) (DOW).
In this series, we’ll look at some key industry indicators. We’ll look at commodity prices as well as demand-supply dynamics. It’s important to note that the demand-supply balance is a key driver of metals prices.
By looking at these indicators, we’ll get a sense of whether Alcoa’s slide is due to its deteriorating fundamentals or a short-term price correction. We’ll also look at Alcoa’s valuation multiples to understand whether the market is fairly valuing the stock.
Let’s begin by looking at the recent trend in aluminum prices.