The share price of BlueScope Steel Limited (ASX: BSL) has plunged over 12% today after the global steel producer released its FY 2014 profit results. Despite reporting an underlying profit of $112.3 million – which represents a turnaround of $105.6 million from last year's underlying profit of just $6.7 million – investors have shunned the stock today. Shares are down as low as $5.31.
Results OK but fail to meet expectations
It's been a tumultuous time for shareholders of BlueScope Steel over the past few years and the latest results are certainly a step in the right direction. However with a market capitalisation of $3 billion higher profits are obviously being expected by the market to justify the current price.
On an underlying basis in FY 2014 BlueScope earned 20.1 cents per share; that equates to a price-to-earnings ratio of 26.4 which is obviously high in the absence of investor confidence of strong growth in next year's earnings.
Could the stock be a buy?
Perhaps the most annoying thing for shareholders is that they haven't receive a dividend since 2011 and unfortunately they will have to wait a while longer with the board not declaring a final dividend for FY 2014.
BlueScope's earnings are sensitive to a number of factors which are largely outside the company's control including hot rolled coil steel prices, coal costs, iron ore costs and the US-Australian dollar exchange rate. Despite these unknowns the company is forecasting a boost to future earnings thanks to recent initiatives which are expected to be earnings per share accretive. BlueScope should also benefit from positive building construction markets across its key global operating regions.
Given the high fixed costs of BlueScope's business, there is significant operating leverage in the business which can produce a large increase in earnings from a small increase in revenue. For investors with a high tolerance for risk, BlueScope could be a stock worth monitoring.
