Headquartered in London,  Ferroglobe PLC (GSM) is one of the world’s largest producers of silicon metal and its alloys, and manganese alloys, that operates across Canada, France, and the United States, among other regions. Its stock has attracted significant investor attention based on the U.S. International Trade Commission’s (ITC) final vote on July 28 that silicon metal imports from Malaysia have materially injured the U.S. industry. The U.S. Department of Commerce (DOC) will issue a formal antidumping duty order covering all imports from Malaysia for at least five years. GSM’s  stock has surged 58.5% over the past month to close Friday’s trading session at $9.37.

However, the stock is currently trading 16.7% below its 52-week high of $11.25, which it hit on September 2, 2021. Furthermore,  GSM’s revenue and total assets have declined at CAGRs of 12.7% and 13.8%, respectively, over the past three years. In addition, its net debt came in at $358 million in the second quarter (ended June 30, 2021) compared to $334 million in the first quarter (ended March 31, 2021). And its business could continue to be impacted by the COVID-19 pandemic. So, its near-term prospects look bleak.

Here are the factors that we think could shape GSM’s performance in the coming months:

Unable to Fully Capitalize on Soaring Metal Prices

GSM’s average selling price for silicon metal came in at $2,347 per MT for the second quarter, ended June 30, 2021, representing a 5.9% year-over-year rise. While its silicon-based alloys' average selling price increased 19% year-over-year to $1,830 per MT, its manganese-based alloys' average selling price came in at $1,414 per MT, up 30% year-over-year. Also, the company’s top-line surged 15.8% year-over-year to $418.54 million in the quarter.

However, GSM’s CFO, Beatriz García-Cos, said, “We remain far from reaching the full potential of this business. Our top line is not fully benefiting from the current market prices across our product portfolio as we have fixed price contracts which begin to roll off during the back half of the year. Furthermore, we had several one-off, non-recurring expenses which also adversely impacted our margins.”

Negative Impact of COVID-19

The resurgence of the COVID-19 cases across several parts of the world continues to worry investors because  restrictions on various activities to limit the spread of the deadly virus could  continue to impact operations of several companies, such as GSM. In fact, the company’s management said on August 23, “COVID-19 has negatively impacted, and will in the future negatively impact to an extent we are unable to predict, our revenues.”

Poor Profitability

In terms of trailing-12-month gross profit margin, GSM’s 29.80% is 1.8% lower than the 30.35% industry average. Likewise, the stock’s 0.51% trailing-12-month EBITDA margin is 97.4% lower than the 19.51% industry average. Also, its trailing-12-month ROCE, ROTC, and ROTA are negative versus the industry’s respective  12.35%, 6.85%, and 5.07% averages.

POWR Ratings Reflect Bleak Prospects

GSM has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, GSM has a D grade for Stability, in sync with its beta of 2.98.

The stock has a D grade for Value also. This is justified because GSM's trailing-12-month EV/EBITDA and P/B of 310.25x and 5.30x, respectively, are significantly higher than the 9.37x and 2.29x industry averages.

In addition to the POWR Rating grades I’ve just highlighted, we’ve also rated GSM for Growth, Sentiment, Quality, and Momentum. Get all of GSM’s ratings here.

GSM is ranked #29 out of 38 stocks in the Industrial – Metals industry.

Click here to check out our Industrial Sector Report for 2021

Bottom Line

Even though GSM’s shares have soared in price over the past month, its near-term prospects don’t look very promising. Wall Street analysts expect the stock to hit $1.08 in the near term, which indicates a potential 88.5% decline. So, the stock is best avoided now.

How Does Ferroglobe (GSM) Stack Up Against its Peers?

While it could be wise to avoid GSM now, one may consider these other stocks within the Industrial - Metals industry with an A (Strong Buy) rating: Ryerson Holding Corporation (RYI), Vale S.A. (VALE), and BHP Group (BHP).

GSM shares fell $0.23 (-2.45%) in premarket trading Tuesday. Year-to-date, GSM has gained 457.32%, versus a 22.02% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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