Steel Dynamics (STLD, Financial) came up with solid results. The financial strength can be seen by a strong 71% growth in the net income on yearly basis. Though the industry had been soft due to challenges in the effective imports, the company achieved significant growth. However, the investor might still worry about the stock as the overall steel industry is on a softer edge as it is in a turnaround and it might take some time be a strong option. But the management of the company is optimistic about its solid ground in this situation as well. Let us find out.
Solid performance
It is confident about solid performance as it has number of positive grounds which it is counting on. It is mainly counting on Columbus which it thinks will be a key part of its growth story in future. It is also focusing on starting many organic growth products which will also give a good shape to its operational efficiency. Steel Dynamics thinks to be well equipped to fetch the growing opportunities in the industry and is confident of maintaining a differentiated growth momentum.
Steel Dynamics is seeing positive trends in the U.S steel market in future. As the economy is recovering, the company is seeing good improvement in the consumer confidence and buying trends. Due to this, there is an impressive ramp up in the durable goods and non-residential investment which also are some of the key measures concerning continued strength in U.S steel consumption.
Moving on, this recovery in the U.S steel market has also improve the spending capacity of the customers which resulted in the boom in the segments such as automotive and construction. There is a great opportunity for Steel Dynamics with this as it will ramp up the demand for the steel which will further ramp up the demand for automotive.
Recovery driving growth
Moving on, Steel Dynamics sees positive market dynamics in 2015 with manufacturing segment remaining solid. However, the company might face some near term headwinds due to deteriorating energy market as well as imports. However, many analysts says that the oil prices will recover but as the pricing cycle is fluctuating, the consistent rise in the oil prices cannot be expected soon.
The company is pleased with the robust customer demand. Despite shaky price market, the combination of seasonal lower demand and elevated imports have resulted in increased customer inventory which it thinks will positively affect its first quarter results in 2015.
Steel Dynamics on the other hand is counting on acquisition of Columbus. With this, Steel Dynamics is expected to have incredible opportunity of creating a single flat roll group. With this, the company will be in a prime position to utilize its core competencies. This is not enough as this will further help Steel Dynamics to develop strong relationship with new and existing customers. This will also complement its product portfolio, giving it exposure of some higher end growth markets.
Conclusion
Moving on the fundamentals, with a trailing P/E of 29.43 the stock looks slightly over valued also its earnings are showing not so impressive growth in the near future with a forward P/E of just 9.53. However, the stock can be a good long term holding as its earnings are growing with a CAGR of 16.10% which is far better than industry average of just 2.24%. Hence, as per investment perspective only the long term investors should pick Steel Dynamics while others should stay away from the stock until it shows some positive signs of gaining market share in future.
