US steel stocks
Steel stocks just had a nice little Christmas rally. Prior to December, leading steelmakers including U.S. Steel (X) and Nucor (NUE) were trading with year-to-date (or YTD) losses. However, thanks to the rally, both these companies have now recouped their 2017 losses and were trading with YTD gains. AK Steel (AKS) has been an exception, and the stock is still trading with YTD losses.
In this series, we’ll do a comparative analysis of steel companies’ valuations as of December 27. There are several metrics that can be used to value a company. In this series, we’ll look at some of the most widely used valuation multiples like price-to-sales ratio, price-to-earnings ratio, and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization).
However, we should look at valuation multiples with caution. A company with a higher valuation multiple does not necessarily mean that the stock is overvalued. Similarly, a low valuation multiple does not mean that a stock is an automatic buy. There could be some valid reasons why markets might be giving a premium valuation to a particular stock. Furthermore, for companies in cyclical industries like steel (CLF) (XME), valuation multiples tend to peak near cyclical bottoms while valuation multiples are generally the lowest near cyclical peaks.
Let’s begin by looking at different steel companies’ price-to-sales ratios.