As I
mentioned last week in my article, “How to spot an issue with stock
reputation”, it is not too complicated to do so. Yet, it is always better to
look at a concrete case. Considering that I was a former steel analyst and the former
Head of IR at ArcelorMittal five years ago, some of you have asked me to look
the reputation on the stock market of the steelmakers Nucor, ThyssenKrupp, US
Steel and of course, ArcelorMittal. So let’s have a look.
Share price performance and valuation
In order to
form an opinion on stock reputation, the first thing to do is to analyze a
share price’s performance together with its valuation over a long enough period
of time. In this specific case, I looked at the last 3 years.
Historically,
Nucor has always benefited from an excellent image with investors. Its recent
share price performance and its valuation multiples tell us that the American
company has mostly retained this excellent image. Nucor has not only performed relatively
well compared to its peers on the stock market but it has also maintained its
valuation premium.
On the contrary,
ArcelorMittal appears to have a new issue with stock reputation. The industry
leader has underperformed the industry over the last 3 years but also faces a
deterioration of its underlying valuation multiples. This means that its share
price decline is not just the result of its financial performance.
The case of
ThyssenKrupp is also interesting. Historically disliked by investors, the
German group has faced a deterioration in its financial results over the last 3
years. Despite this, its share has resisted well and this has allowed an
improvement of its valuation multiples.
Finally, US
Steel, which sustained heavy losses 3 years ago, has succeeded to recover its
profitability. Nevertheless, its share remains very volatile and its valuation
multiples remain low. This suggests that investors are still discounting its
recovery and continue not to trust the company.
Share price behavior around publications
In order to
provide a more precise analysis, the share price behavior of these companies needs
to be looked at both before and after publications. Once again, to form a solid
opinion and avoid misinterpretation, I have looked at these movements over 3
years, which equates to 12 quarterly results. For each company, I have counted
how many times its share underperformed, outperformed or moved in-line with the
stock market, before and after publications.
Once again, Nucor’s stock shows excellent behavior. Investors show no specific fears or expectations ahead of results publications and they are generally not surprised by announcements. Results are largely non-events. This confirms its excellent stock reputation.
ArcelorMittal’s
publications also appear to have not generated any specific fears. Ahead of
results, its share price has declined only one time out of five. On the contrary,
results publications have been followed by a significant share price change
four times out of five. Those changes are not positive for stock reputation as
they create uncertainty for investors.
ThyssenKrupp
is the steelmaker, which has generated the highest expectations from investors.
Fortunately, its share price behavior after publication shows that the company
has largely met expectations. This has meant an improving stock reputation.
On the other
hand, US Steel’s results publications seem to be anticipated with fear. Over
the last three years, US Steel’s share price went down five times out of 12
ahead of publications. That confirms that despite its results recovery,
investors have little confidence in the company and its share.
Conclusion
As
expected, this small analysis has revealed a lot about these companies’ stock
reputations. Even more so, it has demonstrated 4 key insights:
- A good stock reputation brings a valuation premium (e.g. Nucor).
- An outperformance on the stock market may not be sustainable without a good stock reputation (e.g. US Steel).
- A stock reputation can deteriorate (e.g. ArcelorMittal).
- On the contrary, even with mediocre financial performance, it is possible to improve a stock reputation (e.g. ThyssenKrupp).
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