AK Steel Shares Are Safe to Buy Again

If you like to bet, the stock will get $5.20 per share in the second half of the year.
By Richard Saintvilus ,

AK Steel (AKS) - Get Report shares are to safe to buy again because they are poised to reclaim $5 to $5.20 per share, delivering 10% to 15% gains.

Shares of AK Steel plunged almost 20% following the stock's 40% jump last month. Fundamentally, the move didn't make sense, given the tough environment for commodities. AK Steel was, at the time, projected to earn just 8 cents for this fiscal year, which ends in December, putting its forward price to earnings multiple at a whopping 62, compared with a P/E of 17 for the S&P 500 (SPX) index.

Things are different today. Take a look at the chart below, courtesy of TradingView.

AKS shares closed Tuesday at $4.58, losing 5.6% despite a 13% rebound from its recent low of $4.06. AKS has consolidated above all three key moving averages ( 20-day, 50-day and 100-day) and re-established support above $4.54.

Fundamentally, AK Steel is also seeing an increase in average earnings estimates. Just in the past thirty days, estimates for the just-ended quarter have risen from a projected loss of 10 cents per share, to a narrower projection of 4 cents. During that span, full-year estimates have revered from 3-cent loss to earnings of 19 cents.

Unlike a month ago, when the forward P/E was at 62, the number is now at a less-risky 24, seven points higher than the S&P 500. Based on fiscal 2017 estimates of 38 cents per share, not only does the P/E falls to 12, but the projection calls for a year-over-year earnings increase of 100%. This compares to 26% projected increase 30 days ago.

These scenarios, combined with the stock now back above all three key moving averages, show the risk versus reward in AKS is now positive. As noted, the bet is that sometime in the second half of the year, AKS will reclaim $5 to $5.20 per share, delivering 10% to 15% gains.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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