U.S. steel giant Nucor (NUE 0.49%) had an incredible year in 2022, and shareholders should be pleased. But the year ended on a relatively weak note. And there's a good chance that 2023 won't live up to the record earnings levels set in 2022. Here's why investors shouldn't expect too much from Nucor this year.

A very good year

In 2022, Nucor posted full-year earnings of $28.79 per share, up from $23.16 in 2021. That record result was driven by full-year sales of $41.5 billion in 2022, compared to sales of $36.5 billion in 2021. So far, so good -- but here's where things start to get a little more interesting.

A hand drawing a scale showing price vs. value.

Image source: Getty Images.

The top-line gain was supported by a 26% increase in the average price per ton of steel sold. However, that benefit was offset somewhat by a volume decrease of around 10%. In other words, price increases in the highly cyclical steel industry were the driving force behind Nucor's impressive earnings results in 2022. While that's not inherently a bad thing, it speaks to at least some underlying weakness.

Adding to the concern is that the fourth-quarter 2022 results, while strong, showed the same negative trend. Specifically, volume was down 11% year over year, and pricing was off by 6%. Both figures were sequentially lower from the third quarter as well, with volume off by the same 11% and price lower by 7%. In other words, the steel giant ended the year on a fairly weak note.

Looking forward

Nucor noted that "on a combined basis, the operating income during the first quarter of 2023 from our three business segments is expected to exceed that of the fourth quarter of 2022." That's good news, but management added that one-time items will likely lead to sequentially lower company earnings compared to the fourth quarter of 2022. So, again a somewhat mixed story.

Meanwhile, on the fourth-quarter conference call, management warned that full-year 2023 results may not be as strong as in 2022. So the outlook is good, but perhaps not great.

That brings the story to the stock price, which is up nearly 25% over the past year, while an S&P 500 Index ETF would have lost investors nearly 10%. In fact, the stock has been fairly strong over the past few months, rallying more than 50% since hitting a low point in late September 2022.

NUE Chart

NUE data by YCharts

Investors appear to be pricing in a lot of good news. Notably, the stock's dividend yield, at around 1.25%, is at the lowest point it's seen in roughly a decade. That suggests that shares are trading hands at a premium valuation. 

Tread with caution

This isn't meant to suggest that Nucor is a bad company. It might actually be one of the best-run steel mills on planet Earth. But even a great company can be a bad investment if you pay too much for it.

And when you add a swift price run-up to what looks like a premium valuation to a business that may not be able to live up to recent financial results, there is a real risk that Wall Street revalues the shares lower as quarterly results in 2023 start to roll in.

With management already warning that tough comparisons are likely this year, it might pay for investors to listen.