Ryerson Holding (RYZ) is back on investors’ radar after recent trading moves highlighted its mix of positive long term returns and current loss making results, with value metrics drawing closer attention.

At a share price of US$28.07, Ryerson Holding’s recent 1 month share price return of 7.01% and 1 year total shareholder return of 32.01% point to building momentum after a weaker 3 year total shareholder return.

If you are weighing Ryerson against other materials related ideas, it could be a good moment to broaden your search with our screen of 8 top copper producer stocks

With Ryerson Holding trading near its analyst price target and showing a mix of recent gains and longer term setbacks, the key question now is whether the stock is undervalued or if the market is already pricing in its future prospects.

Price-to-Sales of 0.3x: Is it justified?

On a P/S of 0.3x, Ryerson Holding looks cheap next to peers and industry benchmarks at the current share price of $28.07, which suggests the stock is being priced at a discount to comparable metals businesses.

The P/S ratio compares the company’s market value to its revenue, so for a distributor with sizeable sales like Ryerson Holding, it gives a quick read on how much investors are paying for each dollar of revenue.

Here, that 0.3x multiple is well below the peer average of 1x and far below the US Metals and Mining industry average of 2.6x. This is a strong signal that the market is valuing Ryerson’s revenue stream more conservatively than both its direct peers and the wider sector. Against an estimated fair P/S of 1.5x, the current market level also sits at a steep discount that some investors may view as potential room for the valuation multiple to move closer to that fair ratio over time.

Result: Price-to-Sales of 0.3x (UNDERVALUED)

However, investors also need to weigh Ryerson’s recent net income loss of US$46.3m and its weaker 3 year total return, which could limit any valuation re-rating.

Another view: what the DCF model says

While the 0.3x P/S ratio hints at a wide gap to the 1.5x fair ratio, the SWS DCF model is less extreme. With Ryerson Holding at $28.07 and an estimated future cash flow value of $29.19, the stock appears only modestly undervalued. This raises a simple question for you: is that small discount enough compensation for the business risks highlighted earlier?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Ryerson Holding for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Uncertain about whether the recent momentum and mixed signals add up to a compelling case for you? Take a closer look at both sides of the story with 3 key rewards and 5 important warning signs

Looking for more investment ideas?

If Ryerson has sharpened your focus on valuation and quality, do not stop here. Widen your watchlist now so you are not late to the next opportunity.

• Target quality at a discount by scanning companies that combine solid fundamentals with attractive prices through the 47 high quality undervalued stocks.
• Strengthen your income stream by checking out stocks with robust payouts using the 10 dividend fortresses.
• Reduce portfolio stress by focusing on companies with healthier finances through the 63 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.