Reinforce Your Portfolio With Ryerson

Summary Ryerson Holding Corporation has outperformed the market over the past five years due to profitable growth, dividend issuance, re-shoring, and inflation. RYI’s free cash flow generation supports its dividend policy, and it is well-positioned to benefit from the ongoing re-shoring trend. Ryerson stock is trading at attractive valuation levels, with a high free cash flow yield compared to the market. Vladimir Zapletin The 180-year old steel fabricator, Ryerson Holding Corporation (NYSE: RYI ) has beaten the market over the last half-decade, thanks to its profitable growth, dividend issuance, re-shoring and inflation. Re-shoring and inflation are likely to continue and this will drive continued profitable growth for the business. Ryerson’s dividend policy, an extra lever in the fight to beat the market, is well-supported by its free cash flow generation. In the last five years, the firm has generated 112% of its market cap in free cash flow! The firm is trading at attractive relative multiples, and has a free cash flow yield of 21%. A Market Beater In the last five years, Ryerson’s share price has grown by over 238%, while the Fineco AM MSCI World Metals And Mining UCITS ETF (FAMAMW), which tracks the MSCI World Metals and Mining Index, and serves as a proxy for Ryan’s industry, grew by nearly 11.5%, while the S&P 500 grew by nearly 58%. Over that time, the firm’s total shareholder return (TSR) was nearly 250%. Source: Morningstar A History of Profitability Gross profitability, which scales gross profits by total assets, has risen from 0.41 in 2019 to 0.48 in the TTM period. This is well above the 0.33 threshold that research shows is a marker of attractiveness. The firm’s operating income rose from $210.8 million in 2019 to $413.9 million in the TTM period, compounding at 14.45%. The firm’s net income has risen from $82.4 million in 2019 to $247.7 million in the TTM period, compounding at 27.23% a year. This is far above the mean and median 5-year earnings CAGR enjoyed by firms in the 1950 to 2015 period, of 7.3% and 5.9% respectively, according to data from Credit Suisse . In that time, returns on invested capital (ROIC) have risen from 8.2% in 2019 to 17.8% in the TTM period. This is higher than the mean ROIC of the 2000 largest firms in the United States, which was 9.3%, according to New Construct’s calculations . Source: Ryerson Holding Corporation Filings and Author Calculations Free Cash Flow Supports Dividend Policy Investors should do their due diligence when it comes to dividend payments, because those payments have to be supported by the free cash flows (FCF) that the business generates. Ryerson’s FCF generation certainly supports the firm’s growing dividend payments. In the last five years, FCF has grown from $218 million in 2018 to $$392 million in the trailing twelve months (TTM), compounding at 12.45% a year and amounting to $1.41 billion in FCF, or 112% of Ryerson’s market capitalization. Ryerson began paying out a dividend in 2021, and since then, dividends per share have grown from $0.085 per share in 4Q21 to $0.18 per share in 2Q23, compounding at over 9.8% a quarter. In total, dividends have grown from $6.4 million in 2021 to $22.1 million in the TTM period, amounting to $48.4 million. Share repurchases resumed in 2021, having stopped in 2016, and have grown from $1.8 million in 2021 to $102.7 million in the TTM period, compounding at nearly 285% a year, and amounting to $154.4 million. Thus, in the last five years, Ryerson has earned far more in FCF than it has paid out in dividends or used to repurchase its shares. Source: Ryerson Holding Corporation Filings and Author Calculations Reshoring Benefits Ryerson Russia’s invasion of Ukraine brought geopolitical risk to the fore for both investors and managers. A greater theme, however, has been the new cold war that has arisen between the United States and China since the Trump Administration. This new cold war has increased the risks of Western firms relying on supply in China and other potentially hostile partners, and so businesses from different industries have begun a process of reshoring their supply to Mexico, the United States and Canada. The need for reshoring was deepened by the pandemic , which made everyone realize the benefits of having sources of supply nearer to home, regardless of the geopolitical dynamics between nations. That process is ongoing and unstoppable, even if de-globalization itself is not. According to CNBC , mentions of “re-shoring” in the earnings […]

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