Much to the delight of its shareholders, the Sims Metal Management Ltd (ASX: SGM) share price has gone nuts today.
In late morning trade the shares of the metals and electronics recycler have rocketed 10% to $15.39.
What happened?
With no news out of the company this week, today's gain is likely to be attributable to a research note out of Goldman Sachs this morning.
According to the note, analysts at the investment bank have added Sims Metal to their conviction buy list.
Furthermore, Goldman has revised its price target significantly higher to $16.70. Which even after today's gain represents potential upside of approximately 8.5%.
The catalyst for the upgrade is Goldman's view that improved operating leverage and its higher scrap volume forecasts will result in strong earnings growth over the next few years.
Its analysts have forecast earnings before interest and tax growth of 6% in FY 2017, before accelerating to 35% and 27% in FY 2018 and FY 2019, respectively.
Should you invest?
If Goldman's forecasts are accurate then Sims Metal would certainly be worthy of an investment in my opinion.
But ultimately it will depend on whether or not the rising demand for ferrous scrap metal will continue. If it doesn't continue to rise as expected or scrap prices deteriorate, then I feel Sims Metal will be unlikely to live up to Goldman's expectations and could suffer a sharp share price decline.
After today's strong gain, I would say there are better investment options on the share market that provide a more compelling risk/reward.
