The Sims Metal share price is down 40%: is it a buy for 'green' investors?

Is the 40% decline in the Sims Metal Management Ltd (ASX: SGM) share price a buy opportunity for 'green' investors?

| 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

Sims Metal Management Ltd (ASX: SGM) is the largest dedicated metal recycler in Australia, New Zealand and the United States (US) and makes the majority of its revenue through the sale of recycled metals. Sims Metal Management is also indirectly responsible for helping to reduce global greenhouse gas emissions by producing metals using less energy than is traditionally required through non-recycled methods. This company has a positive impact on the planet and because of this might be an attractive investment for those investors who place a strong focus on sustainability.

The Sims Metal Management share price has fallen more than 40% from its 52-week high. SGM shares currently trade at $10.11 per share with a price-to-earnings ratio of below 12 and a price to book ratio of below 1. These metrics make the current share price appear reasonable and as such now might be a good opportunity to buy. However, a cheap price and operations that benefit the planet do not alone guarantee strong returns for investors.

Is there a compelling investment case for Sims Metal Management?

Sims Metal Management has failed to consistently grow revenue and earnings over the past 10 years. It has also failed to produce significant returns on equity for investors. Over this time period, book value per share has declined and investors have received an annual rate of return of -7.5%, which is disappointing.

The last two years have been an improvement, however, with earnings considerably higher than the five years prior. This has come off the back of stronger metal prices. Debt has also declined to low levels. Both positive signs for SGM shares.

Despite these recent financial improvements, I'm still not rushing to invest in this company. This is because I believe the performance of this company is closely tied to the prices of the metals it recycles. With metal prices hard to predict, so too is the future performance of this company and therefore I would prefer to invest elsewhere.

Foolish takeaway

I can understand why some investors might take an interest in Sims Metal Management shares, given the positive impact this company can have on the planet. However, as an investor I would much prefer to invest in a company that is able to set its own price rather than one which has to accept the price set by the market. This makes forecasting future returns more feasible.

Motley Fool contributor Mitchell Perry has no position in any of the 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 Scott Phillips.

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

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 »