Why Stelco Stock Dived 10% Thursday

What happened?

Stelco Holdings (TSX: STLC) stock dived more than 10% Thursday morning to as low as $36.03 per share after the company announced its weak Q4 shipments. With this, the stock price reached its lowest level in more than three months. Year to date, STLC stock is trading with nearly 12% losses.

So what?

Stelco Holdings is a Hamilton, Ontario-based steel producer with a market cap of slightly more than $40 billion. The company generates most of its revenue from its home market.

Earlier today, Stelco revealed in a press release that its Q4 steel shipments stood close to 625,000 net tonnes, missing its guidance range of 675,000–680,000 net tonnes by a wide margin. The company blamed “various production challenges, including unplanned outages on its hot strip mill, logistics challenges, and delays at the end of the fourth quarter brought on by the emergence of the Omicron variant” for its lower shipments.

The company now expects its Q1 2022 steel shipments to be even lower compared to the Q4 numbers, as it’s advancing the planned outages after witnessing production disruptions in the last quarter. In addition, Stelco also warned investors about recent weakness in steel prices and demand along with labour shortages due to growing pandemic-related woes. These negative updates were the key reasons for triggering a sharp selloff in STLC stock today.

Now what?

The recent growth trend in Stelco’s financials looks impressive. In the September quarter, the steelmaker reported a solid $7.60 per share in adjusted earnings, as its profit margin significantly expanded with the help of surging shipping volume and the favorable price environment. This strong growth was one of the reasons why STLC stock outperformed the broader market in 2021 to yield solid 81.3% positive returns.

But the numerous uncertainties posed by the Omicron variant are likely to hurt the company’s financial growth trend in the near term. That’s why I expect Stelco stock to continue witnessing a further correction in the coming months. Nonetheless, it could be worth buying on the dip as its long-term growth outlook is likely to remain unchanged with these short-term disruptions.