When I last wrote about Universal Stainless & Alloy Products (NASDAQ:USAP), I thought this struggling specialty alloys company had some speculative appeal but only for aggressive risk-seeking investors. The shares have since risen about 30%, on par with fellow alloys company Carpenter (NYSE:CRS), better than Haynes (NASDAQ:HAYN) (up 15%), and worse than Allegheny Technologies (NYSE:ATI) (up 56%). I believe these gains have been fueled by optimism that the "perfect storm" of weakness in aerospace, power gen, oil/gas, and heavy equipment has largely bottomed and that sales and margins should improve from here.
I think USAP could be 10% to 20% undervalued today, and that's assuming the company doesn't regain prior peak sales until 2023 and prior peak gross margins until 2021 (the difference being a mix shift toward higher-margin products). On the other hand, I don't think the company is exactly out of the woods with respect to its debt position and there is ample capacity in the specialty alloy market. Add in wobbliness in aerospace order books and persistent low energy prices, and this remains a stock that's really only suitable for the risk-seeking investor.
Universal Stainless & Alloy Products May Be Bottoming, But The Future Remains Murky