As The Motley Fool continues to expand our stock coverage, from time to time we're going to come across hitherto-unwritten-about equities. Today is one such time, as we delve into the murky financial innards of Russian steel giant Mechel (NYSE:MTL), a company that first debuted on the NYSE as an American Depositary Receipt in October 2004, and which reports its fiscal Q1 2006 numbers tomorrow.

What analysts say:

  • Buy, sell, or waffle? Eight analysts follow Mechel; five of them say it's a buy; three more a hold.
  • Revenues & earnings. None of the analysts have made public their estimates for how much Mechel either sold or earned in the quarter.

What management says:
Actions speak louder than words, right? Well, last month, Mechel announced that its board chairman, Igor Zyuzin, bought sufficient shares in the company to bring his stake up to 65.8% ownership of the company. The most recent tally previous to that announcement put Zyuzin's stake at 52.2%. For the record, under Russian securities law, Zyuzin needs to acquire less than 10% more of the shares outstanding to assume complete control over the company. (Assuming, of course, that he doesn't already have allies controlling that amount.)

On the one hand, this speaks volumes of the confidence that the person most familiar with the company has in its future. On the other, it increases the risk that, if Zyuzin so chooses, he can do some very nasty things to outside shareholders.

What management does:
Meanwhile, things continue to go downhill from a profitability standpoint. After rising initially in the first few months following Mechel's IPO, things have turned south for the steel industry in general. At Mechel, this has resulted in sliding gross and operating margins. (Note that in this table, I am not providing net margin numbers. As is not uncommon with Russian stocks and newly IPO-ed equities, the numbers generated by our data provider look suspicious for these results and probably should not be relied upon.)

Margins %

12/04

3/05

6/05

9/05

12/05

Gross

38.8

40.7

37.5

36.9

35.1

Op.

20.8

22.3

18.4

17.3

14.2
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Worldwide, steel stocks have encountered significant turbulence in recent quarters as the rising cost of energy and other raw materials cuts into their profit margins. These trends have not left Mechel unscathed. Add to this the rising influence of a single shareholder -- one who hasn't been in charge of a public company long enough to show whether he is shareholder-friendly -- and I'd suggest that even adventurous investors should give this company a bit more time to mature on the public markets before buying in.

Investors and institutional shareholders:

  • JP Morgan (NYSE:JPM)
  • AllianceBernstein (NYSE:AB)
  • T. Rowe Price (NASDAQ:TROW)
  • Credit Suisse (NYSE:CSR)
  • Deutsche Bank (NYSE:DB)
  • UBS (NYSE:UBS)

Not sure what an American Depositary Receipt is, but too embarrassed to ask? Never fear, dear Fool. Click through this link and learn everything you need to know. We won't tell a soul.

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Fool contributor Rich Smith does not own shares of any company named above.