Korean steel giant Posco (NYSE:PKX), the world's fifth-largest steelmaker, reported strong profits yesterday. As for the market's reaction to the news -- it's simply unfathomable. The company's stock dropped more than 0.5% on news that Posco had beaten analyst estimates by nearly 18% and in the process more than doubled its Q3 2003 earnings. Revenues also rose -- by 41% -- and though they landed within the range predicted by analysts, they scraped the very top of that range.

It's also interesting to note the stock's recent lackluster appreciation, as compared with the general doubling in market cap accorded its U.S.-based rivals. Over the past year, Posco has gained a (relatively) measly 28%, which, while it beats the Standard & Poor's 500's 19% gains pretty handily, does not compare favorably at all with the more than 200% gains of, for example, Ohio steelmakerAK Steel (NYSE:AKS). That poses an attractive dilemma for investors. Now that a rise in steel prices and steelmaker stocks is clearly under way, most of the gains have already been recorded here at home. Perhaps there's still a chance to profit from the trend, however, by buying into Posco -- which seems still unaffected by the run-up. At this point, a look at valuations is in order:

Current price (rounded to nearest $) Forward P/E 52-week performance
Posco 40 5.6 28%
U.S. Steel (NYSE:X) 38 6.3 96%
Steel Dynamics (NASDAQ:STLD) 38 7.6 136%
AK Steel 10 9.2 331%
Nucor (NYSE:NUE) 94 9.8 82%
Steel Technologies (NASDAQ:STTX) 28 10.5 98%
Reliance Steel (NYSE:RS) 39 11.2 67%
It's clear from the above that a lot of stocks have already appreciated a good deal as a result of worldwide tightness in steel supplies. But bargains may still exist. The market is valuing Posco, for example, at just half the rate of the most expensive company on the list, Reliance Steel. This, despite the fact that over the past year, Posco has raked in $2.4 billion in free cash flow, 100 times more than Reliance's $24 million. Considering that Posco is not 100 times Reliance's size, but just more than 10 times, that's a pretty significant, and maybe a pretty inefficient, discrepancy in how the market values the two companies' cash flows.

Without having a better feel for Korea, its companies, and the reliability of their financial statements, I cannot say for sure whether all the above makes Posco a bargain. But to this outsider looking in, it certainly looks interesting.

Want a better idea of just how quickly an industry trend can turn a debt-ridden company with no free cash flow into an attractive investment? Look no further than these articles on AK Steel:

Fool contributorRich Smithhas no interest in any of the companies mentioned in this article. While fascinated by the steel story, he believes this cyclical industry is nearing its crest and due for a fall.