Ontario’s Stelco Slumps Amid Weak Steel Market & Scrapped Debt Offering

Posted on September 27, 2019 by Dylan Callaghan

Analysts are saying  it’s not the best time for steel right now as prices for the commodity are expected to continue to decline. Ontario based Stelco Holdings Ltd. (TSX:STLD) is in the fold of steel producers currently experiencing a lack of demand globally, causing this slump in steel prices.

To make matters worse for share price, the Canadian stock fell roughly 8% on Tuesday after it withdrew a $300 million USD debt offering. Stelco released last week that the company would offer senior secured notes due 2024 to fund capital expenditures and corporate needs, that could include acquisitions or other deals.

Stelco cited current bond market conditions is what pushed the company to its decision to withdraw the debt offering.

Should Stelco still want to raise funds, there are other potential options. Banks, or other direct lending avenues could be explored. No plans for other funding were released by the company, and in turn the market responded negatively to news of the debt offering being pulled.

Industry experts continue to predict low steel prices going forward. So Stelco is not alone.

Steel pains have been felt across the globe by the largest steel producing nations, China, EU, India, Japan, and the United States all licking their wounds in the steel market right now and healing is seemingly going to take some time.

Is Stelco a buy right now?

Roughly an 8% gain at closing today, is Stelco poised for a rebound? It may be possible with the significant drop seen since the withdrawal of the debt offering, but looking further, the future doesn’t appear to be very promising.

The company sits at a negative PEG of -0.43 that may suggest earnings will continue to shrink, with the company’s quarterly revenue growth shrinking at a pace of -39.40%. If you’re new to buying stocks, the PEG, or price to earnings to growth ratio, compares the company’s growth estimates to its current price to see if its share price is “keeping up” with its growth.

Analysts also expect earnings to continue to fall by roughly 33% per year over the next half decade.

Taking this into account, one could draw the conclusion that now may not be the best point of entry for Stelco, and that waiting to see some more strength in the industry might be a better play. It’s always tough investing in cyclical sectors like steel, oil and even auto producers. The timing has to be right, and you need to know when to exit.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post.

Dylan Callaghan

About the author

Dylan is the co-founder of Stocktrades.ca and an avid self-directed investor. He holds a portfolio of Canadian growth and dividend growth stocks, and believes that anyone, regardless of financial status, stands to benefit from investing in the stock market. His ultimate goal with his writing and the continual development of Stocktrades.ca is to create a resource that helps Canadians, and investors from around the world, make more money and retire earlier.