Which Steel Stocks Look Expensive Based on Price-to-Sales Ratios?



Price-to-sales ratio

In this article, we’ll look at different companies’ PS (price-to-sales) ratio to understand how markets are valuing steel companies based on the metric. Simply put, the PS ratio tells us how much investors are willing to pay for each dollar of the company’s revenues. We’ll look at steel companies’ 2018 expected PS ratio in this article.

AK Steel (AKS) has a PS ratio of 0.29 based on 2018 expected revenues, which is the lowest in our select group of steel stocks, while Steel Dynamics’ (STLD) 2018 PS ratio is the highest among the companies that we’re covering in this series. Both U.S. Steel (X) and ArcelorMittal (MT) have a PS of 0.50 based on 2018 expected sales. Nucor’s (NUE) PS ratio is the second highest among our select group of steel stocks.

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Steel companies’ sales are a function of average selling prices and steel shipments. We could see an improvement in both these metrics next year. Steel shipments could get support from incrementally higher US steel demand and a possible action against steel imports by the Trump administration. On the pricing side, the outlook for US steel prices looks positive, at least for 1Q18. Steel prices have been stable globally, and raw material prices have also firmed up. These factors coupled with the seasonally strong demand in the first quarter should support US steel prices in the near term.

While AK Steel looks the cheapest based on PS ratio, we should also look at some other metrics. In the next article, we’ll look at steel companies’ EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, which is the favored valuation multiple for cyclical stocks.


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