Restocking Could Help Universal Stainless & Alloy Products, But Leverage Proves Elusive

It's been a long wait for Universal Stainless & Alloy Products (USAP) to gain much leverage with customers, particularly in the high-value premium alloys that would drive significant margin leverage from their higher ASP and better capacity utilization. Unfortunately, the numbers tell the story - revenue has grown only about 3% CAGR over the past five years and gross and operating margins are both lower. Granted, five years is perhaps an arbitrary period to examine, but the best that can be said about USAP's stock market performance is that Allegheny (ATI) has done worse and Haynes (HAYN) about as poorly in the market over the past five years (while Carpenter (CRS) has done "less bad" more than better).

USAP is still arguably undervalued on multiple valuation approaches, but I just don't see the momentum in the business that I expected to see by now. USAP should benefit from restocking in 2020 (I think we saw some of that in Q4'19) and maybe there are still opportunities to win meaningful business with its premium alloys, but I can't get excited about a company that serves a commodity market without some apparent edge on the cost, production, and product design side.

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Restocking Could Help Universal Stainless & Alloy Products, But Leverage Proves Elusive