The Evraz share price: should I be buying this sleeping giant?

With a 52% fall in the Evraz share price in the past year, do recent production increases justify a purchase?

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Key points

  • Iron ore sales surged 58.1%, quarter-on-quarter, in calendar Q4 2021
  • The company’s trailing P/E ratio is higher than a major competitor
  • Recent demerger of coal assets has increased share price volatility

As one of the biggest producers of steel in the world, Evraz (LSE: EVR) also operates iron ore and coal mines in the US, Canada, Russia, and Kazakhstan. Aside from providing exposure to these commodities, the Evraz share has been volatile lately. I want to investigate if this provides a good buying opportunity for the long term, or whether it is indicative of deeper problems with the business. Let’s take a closer look.  

Recent Evraz share price volatility

Shareholders have witnessed significant movements in the Evraz share price lately. In the past year, for instance, it has fallen 52%. Several recent events may explain these moves. In December 2021, a demerger of the company’s coal assets became more likely after the company updated the market that “certain documents have been approved”. This would establish the coal segment as a completely distinct entity.

Furthermore, businessman Roman Abramovich increased his stake in Evraz to 29% in February 2022. This caused even more confusion among investors, with the share price falling 5.5%. Finally, recent share price volatility may be partially explained by the rapidly unfolding security situation in Russia and Ukraine, as my Motley Fool colleague Cliff D’Arcy has recently noted. Needless to say, there has been a lot going on with the Evraz share price in recent times.

Do results bring some better news?

In a recent trading update for the three months to 31 December 2021, the company confirmed steel sales had fallen by 4.5% year-on-year. In addition, steel production declined slightly by 0.4%. The firm explained that this was partially due to “maintenance outages in November in North America” and a new Russian “export duty”.

Furthermore, raw coking coal and iron ore production grew by 12.7% and 1.4% respectively, year-on-year. This was primarily due to better work attendance following the Covid-19 pandemic. Also, sales of iron ore increased by 58.1%, quarter-on-quarter, after resuming exports to China.

In spite of this, both UBS and Goldman Sachs issued ‘sell’ recommendations in January and February 2022. While the target prices were 451p and 453p, I suspect these may fall in the near future owing to recent events potentially impacting the Evraz share price.

What’s more, the company has a trailing price-to-earnings (P/E) ratio of 4.08. While this might seem low, close competitor Ferrexpo has a trailing P/E ratio of 2.11. This may indicate that the Evraz share price is slightly overvalued.  

While certain elements of production are on the rise, there is simply too much going on with this business to justify my purchase. At the very least, I will be waiting to see how recent news regarding the demerger and military action develops in order to make a better informed investment decision. I will not be buying shares today.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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