USAP - Universal Stainless: It Was Profitable In 2023 Due To High Prices But This Is Not Sustainable
2024-04-12 05:31:28 ET
Summary
- Universal Stainless is a cyclical company facing declining shipments as well as cyclical and declining returns. The decline in shipment volume suggests that USAP may have lost market share.
- The company's performance from 2012 to 2023 showed minimal growth in revenue and negative returns on equity and assets.
- There is no margin of safety based on its cyclical performance. The market is pricing USAP as if the past 2 years' product prices are sustainable and not cyclical.
Investment Thesis
Universal Stainless & Alloy Products, Inc. ( USAP ) is a cyclical company. At the same time, it is facing declining shipments. Its better performance in 2023 was due to the unusually high product prices that resulted from unusually high raw material prices.
Raw material prices are coming down and there is no evidence that USAP could rebuild back its historical shipment tonnage. I also have concerns about its financial strengths. There is also no margin of safety based on valuing its performance over the cycle. This is neither a wonderful company nor a value investment.
Thrust of my analysis
I last covered USAP in Sep 2023. I had opined then that its poor performance from 2012 to 2022 was due to it operating below its break-even level....
Universal Stainless: It Was Profitable In 2023 Due To High Prices, But This Is Not Sustainable