NEW YORK (TheStreet) -- Shares of Mechel OAO (MTL) - Get Report hit a 52-week low of 94 cents on Monday after Russia's economy minister said bankruptcy was "a probable scenario" for the metals and mining group, according to the Wall Street Journal.
Mechel is facing pressure to repay its heavy debt rather than restructure. Alexei Ulyukayev's comments came after Mechel opposed a proposal by its three largest lenders, VTB, Sberbank and Gazprombank, to convert part of its debt into shares. VTB said it would take legal action to recover its debt in light of Mechel's opposition to the proposal.
The coking coal miner and steel manufacturer is in financial trouble because it took on heavy debt in order to fund major projects just as the price of coking coal, a crucial ingredient to make steel, dropped as supply rose.
The stock closed down 29.66% to $1.02. More than 4.7 million shares changed hands, compared to the average volume of 586,773.
Separately, TheStreet Ratings team rates MECHEL OAO as a "sell" with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate MECHEL OAO (MTL) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, weak operating cash flow, poor profit margins and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 18.21 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.32, which clearly demonstrates the inability to cover short-term cash needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, MECHEL OAO's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to $9.59 million or 95.30% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The gross profit margin for MECHEL OAO is currently lower than what is desirable, coming in at 33.79%. Regardless of MTL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MTL's net profit margin of -36.16% significantly underperformed when compared to the industry average.
- MTL's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 59.69%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- You can view the full analysis from the report here: MTL Ratings Report