Why the Sims Metal Management Ltd share price has rocketed today

Sims Metal Management Ltd (ASX:SGM) shares have surged higher on a surprise profit upgrade. But is it too expensive to consider an investment?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Following in the footsteps of CSL Limited (ASX: CSL), global metals recycling company Sims Metal Management Ltd (ASX: SGM) has released a profit upgrade of its own this morning.

According to the release management expects first-half underlying earnings before interest and tax (EBIT) to be between $75 million and $79 million. This is a big increase on previous guidance of around $63 million.

As you might expect, the Sims Metal Management share price has surged higher on the news. At the time of writing its shares are up 5% to $13.13.

Driving the stronger-than-expected half-year result has been successful cost reductions, optimisation initiatives, and higher ferrous and non-ferrous prices.

But it might be a little too soon to get overly excited. Whilst the first-half looks set to be a huge success, management does have concerns over what's to come in the second half.

Recent declines in the price of coking coal, together with instability in Turkey and the typical winter weather challenges it faces in North America have all been earmarked as concerns.

An additional concern I have is the threat of low-cost and higher-quality billet from China and Russia. If rolling mills continue to opt for this product ahead of Sims, then it could find growth hard to come by in the future.

So with its shares changing hands at 35x trailing earnings as though it were a high-growth tech share, Sims might be one share that investors ought to keep away from at the moment in my opinion.

I think there are far better options for investors in the materials sector including the likes of South32 Ltd (ASX: S32) and Galaxy Resources Limited (ASX: GXY).

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »