Is Red-Hot Olympic Steel Stock Worth a Closer Look?

Weighing the risk-reward potential for ZEUS

Jul 21, 2021 at 12:45 PM
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Steel stocks have had an outstanding year, and some could be poised for an even bigger summer, while others have offered up intriguing entry points. Lesser-known iron & steel stock Olympic Steel, Inc. (NASDAQ:ZEUS) started off the summer with a June 2 burst to 13-year highs at $40. But since then, the shares of the steel stock have struggled, limping into the company's earnings report, set for the first week of August.

Olympic Steel will release its second-quarter earnings after the market closes on August 5. Looking back over the past four quarters, Olympic Steel has met or exceeded earnings expectations across the board. However, the stock averages a quiet post-earnings move of 4.2% in the last eight quarters, regardless of direction.  

Olympic Steel stock is up 122% in 2021 and 192% year-over-year. Despite the uptrend, the single analyst in coverage recommends a "hold" rating. Olympic Steel stock also has a forward dividend of $0.08 and a dividend yield of 0.30%.

Olympic Steel stock has an intriguing valuation. ZEUS trades at a price-earning ratio of 20.81, but has an amazing forward price-earnings ratio of 8.85. However, Olympic Steel's fundamentals are plagued with inconsistencies and uncertainties. For starters, the company's balance sheet only carries $8.31 million in cash, while toting $223.96 million in total debt. In addition, Olympic Steel experienced massive revenues and net income losses between fiscal 2018 and fiscal 2020. During this time period, revenues declined 18% and the company lost about $40 million, taking Olympic Steel to $5.6 million in net losses for fiscal 2020.

Nonetheless, Olympic Steel’s trailing 12-month revenues are up by 9% and their trailing 12-month net income has increased by more than $20 million since fiscal 2020. Overall, ZEUS has some potential as a turnaround play, but Olympic Steel stock may have already priced-in a big part of that recovery making the risk-reward ratio far less attractive.

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