Trending Stock Steel Dynamics, Inc. (STLD), a Buy Right Now
Steel Dynamics Zacks.com users have been closely following the stock STLD (see below). It might be worthwhile to examine some factors that could affect the stock’s near-term performance.
Shares of this steel producer and metals recycler have returned +8.3% over the past month versus the Zacks S&P 500 composite’s no change. Steel Dynamics, which is part of the Zacks Steel-Producers industry, has seen an 8.7% increase over the same period. The key question now is: Where does the stock go in the near future?
Although media reports or rumors of a significant change in a company’s business prospects often make the stock ‘trending’, and cause an immediate price drop, there are still some basic facts that ultimately determine whether to buy-and-hold.
Earnings Estimate Revisions
Zacks values the impact of future earnings projections on a company’s future earnings more than any other factor. We believe that the fair value of a stock’s stock is determined by its future earnings stream.
Our analysis is based on how the sell-side analysts who cover the stock are revising earnings estimates to reflect the latest business trends. The fair value of a stock’s stock increases when its earnings estimates go up. Stocks with a fair value higher than their current market price are more popular among investors, which leads to a rise in stock prices. Evidence from empirical studies shows a strong correlation between earnings estimates revision trends and stock price movements in the short-term.
Steel Dynamics expects to report earnings of $3.60 per shares for the current quarter. This is a decrease of -37.7% compared to the year-ago quarter. The Zacks Consensus estimate has increased by 2.8% in the last 30 days.
For the current fiscal year, the consensus earnings estimate at $21.97 indicates an increase of +36.5% over the previous year. Over the past 30 days, this estimate has fluctuated by +16.8%.
The consensus earnings estimate for the next fiscal year of $10.82 represents a change in earnings of -50.7% compared to what Steel Dynamics expects to report last year. The estimate has fluctuated +16.8% over the past month.
The Zacks Rank is a proprietary stock rating tool that uses the power of earnings estimates revisions to give a clearer picture of a stock’s future price direction. This stock rating tool has a strong track record. Steel Dynamics is Zacks Rank #1 (Strong buy) due to the large change in consensus estimate and three other factors related earnings estimates.
Below is a chart that shows the evolution of the forward 12-month consensus EPS estimation for the company.
12 Month EPS
Projectioned Revenue Growth
Earnings growth is the best indicator of a company’s financial health. However, it doesn’t mean that a business can grow its revenue. It’s almost impossible for a company increase its earnings over a long period of time without increasing its revenue. Knowing the potential revenue growth of a company is crucial.
Steel Dynamics has a consensus estimate of $4.73Billion in sales for the current quarter. This indicates a year over-year change at -10.9%. Changes of +20.4% to $16.08 billion for the current fiscal year and the next fiscal years are indicated by the estimates at $22.17 and $16.08 billion, respectively.
Surprise History and Last Reported Results
Steel Dynamics reported $5.65 billion in revenues for the quarter ended December 31, 2017, a +11.1% increase year-over–year. Comparable to $4.96 a Year ago, the EPS for the same period was $5.46.
Comparable to the Zacks Consensus estimate of $5.48 trillion, the reported revenues surprise by +3.16%. The surprise in EPS was +9.86%.
In all four of its trailing quarters, the company beat consensus EPS estimates. Each time, the company beat consensus revenue estimates during this period.
Valuation
Investment decisions cannot be made without considering the stock’s value. It is crucial to assess whether the stock’s current price accurately reflects the intrinsic value and growth prospects of the underlying company.
It is possible to compare the company’s current valuation multiples, such price-to earnings (P/E), cost-to–sales (P/S), or cash flow (P/CF), with its historical values to determine if its stock is fair valued, overvalued or undervalued. Comparing it to other companies on these parameters can give a good idea of its stock price.
The Zacks Style Scores Zacks Value Style Score, which takes into account both traditional and unorthodox valuation metrics, grades stocks from A-F. An An is better than an A; a A is better than another C; etc. It helps to identify whether a stock has been overvalued, correctly valued, or temporarily undervalued.
Steel Dynamics has been graded B on this score, which means that it trades at a discount to its peer companies. Click here for the valuation metrics used to determine this grade.
Bottom Line
These facts and other Zacks.com information might help you decide if it is worth paying attention to Steel Dynamics’ market buzz. Its Zacks Rank #1 suggests that it could outperform the broader markets in the short term.
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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report