Globe Specialty Metals (GSM - Snapshot Report) reported a big earnings and sales miss on May 6. Since then, analysts have revised their estimates significantly lower for both this year and next. This has driven the stock to a Zacks Rank #5 (Strong Sell).

The stock doesn't look like much of a value here either with a forward P/E ratio above 20. The Zacks Value Style Score is a 'D'.

Globe Specialty Metals produces silicon metal and silicon-based alloys, which are used in a variety of industrial and consumer products. Its customers include major silicone chemical, aluminum and steel manufacturers, auto companies and their suppliers, ductile iron foundries, manufacturers of photovoltaic solar cells and computer chips, and concrete producers. Approximately 20% of sales come from Dow Corning.

Third Quarter Results

Globe Specialty Metals reported its fiscal 2015 third quarter results after the bell on May 6. Adjusted earnings per share came in at $0.20, missing the Zacks Consensus Estimate of $0.24. However, this was a significant increase from the same quarter last year due primarily to lower cost of goods sold.

Sales fell 1% year-over-year to $194.7 million, well below the consensus of $217.0 million. Total shipments fell 6% year-over-year, but this was somewhat offset by an increase in the average selling price of silicon metal. Net sales fell 7% in the United States, which represented 78% of total net sales in the quarter.

Despite the sales decline, inventories surged 57% year-over-year, including a 72% increase in finished goods.

Estimates Falling

Following the Q3 miss, analysts revised their estimates significantly lower for both fiscal 2015 and 2016. This sent the stock to a Zacks Rank #5 (Strong Sell).

The 2015 consensus is now $0.82, down from $0.90 before the report. The 2016 consensus is currently $0.96, down from $1.09 over the same period.

Valuation

Shares of Globe Specialty Metals do not look like a value here. The stock trades at more than 20x 12-month forward earnings, a premium to its historical median of 18x. And its enterprise value to cash flow ratio is a lofty 20x.

The Zacks Value Style Score is a 'D'.

The Bottom Line

With falling earnings estimates and premium valuation, investors should consider looking elsewhere for now.

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