POSCO Looks Abnormally Cheap, Even Factoring In The Risks Of Empire-Building And Capacity Growth

Among the steel companies I regularly follow, Korea's POSCO (NYSE:PKX) has become more and more of an outlier, and not in good ways. While there have been steel companies whose shares have done even worse since my last update on the company, the performance is still notably bad compared to companies like ArcelorMittal (MT), Nippon Steel (OTCPK:NPSCY), Nucor (NUE), and Steel Dynamics (STLD).

Some of this underperformance can be explained by margin pressures from input cost inflation and uncertainties in the demand outlook, but POSCO also stands out from the crowd with its desire to pursue empire-building - if management has its way, steel will only be around half of the business in eight years and the company will have extensive operations in areas like battery and hydrogen production.

I don't necessarily think that reinvesting the cash flows from the steel operations into new businesses is a bad idea, but POSCO has a bad historical track record outside of steel (even if that record was built by other managers) and investors these days tend to want their steel companies to be steel companies. While POSCO does screen out as quite cheap on fundamentals, it's hard to say when sentiment will turn around.

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POSCO Looks Abnormally Cheap, Even Factoring In The Risks Of Empire-Building And Capacity Growth