On a mostly down day for markets in general, shareholders of mini-mill operator Steel Dynamics (NASDAQ:STLD) were grinning quite widely yesterday, following reports that the firm has authorized a buyback of as much as 10% of its shares outstanding. Those announcements drove a 6% pop in the stock's price.
Perhaps the news shouldn't have come as a surprise. Steel Dynamics' stock had plunged from nearly $70 a share back in May to just $50 per stub before the announcement was made public. Steel Dynamics' stock has risen in value 70% since September 2004, but that didn't dissuade management from buying back 7.5 million shares of stock over the past two years. With the recent selloff in mind, it might have been foreseeable that management would view last week's depressed price as a buying opportunity.
And so it did. According to the firm's Tuesday morning press release, Steel Dynamics' board has authorized an additional 5 million shares' worth of buybacks. Mind you, this is only an "authorization" to buy back shares "as and when determined by the Company from time to time." That means the firm could just as easily not buy shares. But from where this Fool sits, "buying them" seems the more likely result. Why? Because when compared to rival minimill operators Nucor (NYSE:NUE) or Commercial Metals (NYSE:CMC), Steel Dynamics shares are, if you'll pardon the pun, a steal at today's prices. Just look at the stats:
|
P/E |
P/S |
Operating margin |
Projected growth rate | |
|---|---|---|---|---|
|
Steel Dynamics |
9.5 |
1.0 |
19% |
10% per annum |
|
Nucor |
10.7 |
1.1 |
17.5% |
5% per annum |
|
CMC |
8.6 |
0.4 |
7.3% |
5% per annum |
Compared to archrival Nucor (for whom Steel Dynamics CEO Keith Busse worked before setting up his own shop in 1993), Steel Dynamics earns more profit on its revenues, and it's expected to grow at twice Nucor's rate over the next five years. Yet Steel Dynamics shares are trading at a discount to Nucor's on both a price-to-earnings and price-to-sales basis. Compared to CMC, Steel Dynamics does command a higher price -- but I'd say that profitability nearly three times what CMC boasts, and a growth rate twice as fast, more than justify that premium.
When you combine cheap shares with a business that -- also according to the press release -- expects to best consensus analyst earnings estimates both this quarter and next, I believe that yesterday's jump in share price was wholly justified, whether Steel Dynamics actually gets around to buying back the additional shares or not.
Check up on archrivals Steel Dynamics' and Nucor's latest quarterly earnings with:
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Fool contributor Rich Smith does not own shares of any company named above.
