Barbarian At The Gate: Steel Dynamics (STLD)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Steel Dynamics ( STLD) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Steel Dynamics as such a stock due to the following factors:

  • STLD has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $44.0 million.
  • STLD has traded 2.0 million shares today.
  • STLD traded in a range 224.5% of the normal price range with a price range of $1.03.
  • STLD traded above its daily resistance level (quality: 7 days, meaning that the stock is crossing a resistance level set by the last 7 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on STLD:

Steel Dynamics, Inc., together with its subsidiaries, manufactures and sells steel products, processes and sells recycled ferrous and nonferrous metals, and fabricates and sells steel joist and decking products in the United States and internationally. The stock currently has a dividend yield of 2.6%. STLD has a PE ratio of 34. Currently there are 11 analysts that rate Steel Dynamics a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for Steel Dynamics has been 3.5 million shares per day over the past 30 days. Steel Dynamics has a market cap of $5.2 billion and is part of the basic materials sector and metals & mining industry. The stock has a beta of 1.48 and a short float of 1.2% with 2.10 days to cover. Shares are up 7.3% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Steel Dynamics as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 17.6%. Since the same quarter one year prior, revenues rose by 11.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has significantly increased by 961.40% to $234.71 million when compared to the same quarter last year. In addition, STEEL DYNAMICS INC has also vastly surpassed the industry average cash flow growth rate of 31.87%.
  • STLD's debt-to-equity ratio of 0.91 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that STLD's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.51 is high and demonstrates strong liquidity.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • STEEL DYNAMICS INC's earnings per share declined by 23.5% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, STEEL DYNAMICS INC reported lower earnings of $0.67 versus $0.83 in the prior year. This year, the market expects an improvement in earnings ($1.17 versus $0.67).

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