What’s going on with Algoma Steel stock

Canadian steel company Algoma Steel stock, jumped 19.6% higher on Wednesday (as of the market close) following better-than-expected results for its fiscal Q4 and full-year 2022 earnings.

According to its preliminary announcement, analysts predicted Algoma Steel Group (NASDAQ:ASTL) would report a $1.57-per-share profit on sales of $961 million in the fourth quarter. However, despite the revenue miss, the firm “beat earnings” with a per-share profit of $1.59.

Why we care

Algoma posted a positive earnings surprise, thanks to a 46.5% year-over-year sales increase in the fourth quarter of its fiscal year. However, while financial data sites aren’t clear on the issue, analyst predictions and Algoma’s results are undoubtedly prepared in reference to Canadian dollars, which are worth about $0.77 (USD). As a result, Algoma’s revenues were only $725 million in US dollars.

For comparison, the year’s revenue was $3.8 billion (up 112% year over year), or just $2.9 billion in USD.

Overall, Algoma’s net earnings increased by more than twofold to CA$242.9 million (i.e., $187 million). For the year, profits were CA$857.7 million (i.e., $660.4 million). That’s a tremendous change from fiscal 2021 results when Algoma lost money.

What now

For Algoma, the results were “incredible,” according to CEO Michael Garcia. He observed that revenues, profits, and cash flows shattered previous highs for his firm. He’s also making significant investment wagers on that assumption.

Algoma is making many bets, including $400 million to buy back stock. That buy back is part of the firm’s strategy to retire up to 5% of its common stock. As a result, the decrease in shares will concentrate Algoma’s earnings among fewer shares outstanding. That is assuming the stock is profitable. However, if the economy deteriorates and Algoma again loses money, for example, in the event of a recession, fewer shares outstanding will concentrate those losses.

That’s something investors should consider, but Algoma steel stock is currently trading for just two times trailing earnings, making it a risk worth owning a share of this excellent value stock.

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