BlueScope Steel Limited plunges 12%: Here's what you need to know

BlueScope Steel Limited (ASX:BSL) is in the turnaround phase.

| More on:

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

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.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

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 »