The Sims Metal Management Ltd share price hit a 5-year high yesterday

The Sims Metals Management Ltd (ASX: SGM) share price closed at a 5-year high of $14.52 yesterday afternoon. Shares of the scrap metal recycling company have now risen almost 50% year-to-date.

Sims has implemented a program to cut costs and grow earnings with no external improvement in scrap prices, although it has also been a prime beneficiary of higher ferrous metal prices in recent times.

Surprisingly, shares have shot higher despite the recent rout in iron ore prices and fund managers, Alphinity and Challenger Limited (ASX: CGF) have taken significant stakes in the company in recent times.

At a share price of $14.52, Sims Metals Management shares trade on 24 times forward earnings estimates, and a forecast dividend yield of 2.2%.

The company has a track record of poor and cyclical returns to shareholders, and may be too risky at today’s prices.

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Motley Fool contributor Motley Fool Staff has no position in any company mentioned. The Motley Fool Australia owns shares of Challenger Limited. 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.

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