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As part of our ongoing series here at The Acquirer’s Multiple, each week we focus on one of the stocks from our Stock Screeners, and why it’s possibly a deeply undervalued gem.

The Stock this week is:

ArcelorMittal SA (MT)

ArcelorMittal SA is the world’s largest steel producer, operating in more than 60 countries. The company produces a wide range of steel products, including flat steel, long steel, and tubular products, serving industries such as automotive, construction, household appliances, and packaging. ArcelorMittal is also a leader in sustainability, investing in innovative technologies to reduce carbon emissions and improve energy efficiency.

A quick look at the share price history (below) over the past twelve months shows that the price is up 11%.

Source: Google Finance

This week’s large-cap stock screen includes a significant presence of materials and industrials companies, particularly those involved in steel production, mining, and construction. Energy-related companies, integrated oil and gas, renewable energy and traditional fossil fuels, also have a strong representation. Technology and automotive sectors contribute meaningfully, with companies engaged in electric vehicles, advanced manufacturing, and industrial automation.

One of the metrics we use in our screens is IV/P (Intrinsic Value to Price). Let us simplify what it means:

IV/P (Intrinsic Value to Price) tells you if a stock is a good deal or not based on how much value you’re getting for the price you pay. Here’s how it works:

The Calculation: It adds up the stock’s ability to make money (Earning Power), grow (Incremental Growth), and pay back investors (Shareholder Yield). This gives you an idea of what the stock is really worth, called its Implied Value.

The Meaning of IV/P:

– If IV/P is greater than 1, it means you’re getting more value than you’re paying for. For example, for every $1 you invest, you’re getting more than $1 of value. That’s a good deal!

– If IV/P is less than 1, it means you’re getting less value than you’re paying for. For example, for every $1 you invest, you’re getting less than $1 of value. That might not be a great deal.

What It’s Used For:

– It’s a quick way to spot undervalued stocks (good deals).

– If IV/P is very low, like 0.6 (you’re only getting 60 cents of value for $1), it’s likely overpriced.

So, IV/P helps investors find stocks that are “cheap” based on how much value they give back. Higher is usually better!

We currently have an IV/P of 10 for ArcelorMittal SA (MT), which means the stock’s Implied Value is calculated to be 10 times greater than its current price. In simpler terms:

– For every $1 you invest, you’re potentially getting $10 of value.

– This is an extremely high ratio, which might suggest the stock is deeply undervalued

Possible Reasons for This Undervaluation:

1. Cyclical Nature of the Steel Industry: The steel industry is highly cyclical, and ArcelorMittal’s earnings can be volatile depending on global demand, commodity prices, and economic conditions. This cyclicality may lead to temporary undervaluation during downturns.

2. Global Economic Uncertainty: Concerns about slowing global growth, particularly in China (a major consumer of steel), and geopolitical tensions have weighed on investor sentiment, potentially creating a disconnect between the stock price and its intrinsic value.

3. Sustainability and Carbon Transition: While ArcelorMittal is investing heavily in reducing its carbon footprint, the transition to greener steel production involves significant capital expenditures. Investors may be undervaluing the company due to short-term cost pressures, despite its long-term potential in sustainable steel production.

4. Strong Fundamentals: Despite the challenges, ArcelorMittal has a strong balance sheet, robust free cash flow generation, and a history of returning capital to shareholders through dividends and buybacks. These factors may not be fully reflected in the current stock price.

We currently have the company on an Acquirer’s Multiple of 1.00, with a Shareholder Yield of 7.43%, and a 5-Year ROA of 34%.

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