Given the solid footing of the steel industry in the current macroeconomic environment, let’s explore the fundamentals of steel stocks such as Friedman Industries, Incorporated (FRD), Aqua Metals, Inc. (AQMS), and Companhia Siderúrgica Nacional (SID) to see if they are buy, sell, or hold candidates.
According to a survey, 94% of U.S. producers, distributors, traders, and end-users expected finished steel prices to rise in March, during which 45.7% of participants were seeing prices moving higher, with 100% expecting prices to increase or remain steady as domestic mills continued to raise their spot offers amid extending lead times and limited availability.
Recently steel prices flared up thanks to reduced import volumes, production delays at several domestic mills, elevated mill input costs, and better-than-expected demand. As of March 8, hot-rolled steel sheet prices were $1,017/ton, up $235/ton from the previous month.
Since the beginning of the year, hot-rolled coil prices have increased by more than 60%. Due to rising prices, steel companies are expected to improve their margins in the upcoming quarters.
Moreover, the VanEck Vectors Steel ETF (SLX) has gained 33.5% over the course of the past year. It is also showing relative strength year-to-date, climbing 10.2%.
The global market for Iron and Steel is projected to reach $1.88 trillion by 2028, growing at a CAGR of 2.9%. Given the industry’s backdrop, let’s discuss the fundamentals of steel stocks FRD, AQMS, and FRD to help you navigate if it’s the time to buy, sell or hold these stocks.
Stock to Buy:
Friedman Industries, Incorporated (FRD)
FRD is a manufacturer and processor of steel products with operating plants in Hickman, Arkansas; Decatur, Alabama; and Lone Star, Texas. The company operates in two segments: coil products and tubular products.
On March 21, the company declared a dividend of $0.02 per share on its common stock, payable to shareholders on May 26, 2023. FRD’s four-year average dividend yield is 1.45%, and its current dividend of $0.08 translates to a 0.71% yield on prevailing prices. Also, its dividend payout has grown at a 14.9% CAGR over the past five years.
In terms of trailing-12-month EV/Sales, FRD is trading at 0.25x, 82.9% lower than the industry average of 1.48x. The stock’s trailing-12-month Price/Sales of 0.16x is 85.8% lower than the 1.14x industry average. Furthermore, the stock’s forward Price/Cash Flow of 1.56x is 81.6% lower than the 8.49x industry average.
FRD’s net sales increased 116.5% year-over-year to $111.86 million for the fiscal third quarter that ended December 31, 2022. Its earnings from operations amounted to $110.43 million versus a loss from operations of $5.59 million in the year-ago period. The company’s net earnings came in at $1.38 million and $0.19 per share compared to a net loss of $2.96 million and $0.45 per share in the prior-year period.
Its revenue has grown at CAGRs of 48.8% and 38.4% over the past three and five years, respectively. Its total assets have grown at a 34.3% CAGR over the past three years.
The stock has gained 59.5% over the past six months and 15.8% year-to-date to close the last trading session at $11.34.
FRD’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value and a B for Growth and Sentiment. Out of 34 stocks in the A-rated Steel industry, it is ranked #12.
In addition to the POWR Ratings I’ve just highlighted, click here to see FRD’s ratings for Momentum, Stability, and Quality.
Stock to Avoid:
Aqua Metals, Inc. (AQMS)
AQMS is engaged in the business of applying a commercialized clean water-based recycling technology to develop recycling solutions for lead and lithium-ion batteries in the United States. Its AquaRefining process produces purity metals and alloys that can be returned to the battery manufacturing supply chain.
In terms of forward EV/Sales and Price/Sales, AQMS is trading at 101.70x and 102.45x, significantly higher than the industry averages of 1.59x and 1.29x, respectively.
Also, the stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 63.70%, 35%, and 46.06% compares to the industry averages of 13.67%, 6.96%, and 5.16%, respectively.
For the fiscal year 2022, which ended December 31, AQMS’ product sales declined 97.7% year-over-year to $4,000. The company reported a loss from operations and a net loss of $15.58 million and $15.43 million, respectively. Also, its loss per share amounted to $0.20 for the same period.
Analysts expect AQMS’ EPS to remain negative for the fiscal years 2023 and 2024. It has a grim earnings surprise history, missing the consensus EPS estimates in three of the trailing four quarters. AQMS’ shares have lost 33.8% over the past year to close the last trading session at $1.00.
AQMS’s bleak outlook is reflected in its overall F rating, equating to a Strong Sell in our POWR Ratings system. It has an F grade for Value and Quality and a D for Stability and Sentiment. AQMS is ranked last in the same industry.
Click here to access additional ratings for AQMS’ Growth and Momentum.
Stock to Hold:
Companhia Siderúrgica Nacional (SID)
Brazil-based steel producer SID operates throughout the entire steel production chain, from the mining of iron ore to the production and sale of a range of steel products, including coated galvanized flat steel and tinplate. The company operates in five segments: Steel; Mining; Cement; Logistics; and Energy.
In terms of forward non-GAAP P/E, SID is trading at 5.47x, 59.9% lower than the industry average of 13.66x. Likewise, its forward EV/EBITDA and Price/Sales multiple of 4.04 and 0.46 compare to the industry averages of 7.48 and 1.14, respectively.
SID’s trailing-12-month net income margin of 3.50% is 53.9% lower than the industry average of 7.59%. But its trailing-12-month EBIT margin of 17.43% is 38.9% higher than the industry average of 12.6%.
SID’s revenue increased 7.4% year-over-year to R$11.13 billion ($2.19 billion) for the fourth quarter that ended December 31, 2022. Its gross profit decreased 12.6% year-over-year to R$3.28 billion ($647.71 million). The company’s net income fell 81.5% over the prior-year quarter to R$196.79 million ($38.81 million).
Analysts expect SID’s revenue for the fiscal first quarter (ended March 31, 2023) to decline 4.8% from the year-ago value to $2.29 billion, while its revenue estimate of $2.40 billion for the current quarter (ending June 2023) is expected to increase 16.8% year-over-year.
SID failed to surpass the EPS estimates in three of the trailing four quarters. On the other hand, it surpassed the consensus revenue estimates in three out of the trailing four quarters.
The stock has gained 29% over the past six months to close the last trading session at $3.07. However, it slumped 5.3% over the past month.
SID’s POWR Ratings show that the company has an overall rating of C, which translates to Neutral in our proprietary rating system. It has a C grade for Growth, Value, Momentum, Stability, Sentiment, and Quality. Within the same industry, it is ranked #22 out of 34 stocks. Get all ratings for SID here.
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FRD shares were trading at $11.58 per share on Monday afternoon, up $0.24 (+2.12%). Year-to-date, FRD has gained 18.51%, versus a 7.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
Is It Time to Buy, Sell or Hold These 3 Steel Stocks? StockNews.com
