Critical Survey: Algoma Steel Group (NASDAQ:ASTL) versus Gerdau (NYSE:GGB)

Gerdau (NYSE:GGB) and Algoma Steel Group (NASDAQ:ASTL) are both basic materials companies, but which is the superior stock? We will contrast the two companies based on the strength of their analyst recommendations, risk, dividends, profitability, valuation, earnings and institutional ownership.

Risk and Volatility

Gerdau has a beta of 1.49, meaning that its stock price is 49% more volatile than the S&P 500. Comparatively, Algoma Steel Group has a beta of 1.56, meaning that its stock price is 56% more volatile than the S&P 500.

Earnings and Valuation

This table compares Gerdau and Algoma Steel Group”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Gerdau	$12.43 billion	0.59	$846.59 million	$0.27	13.54
Algoma Steel Group	$2.07 billion	0.22	-$62.28 million	($4.75)	-0.91

Gerdau has higher revenue and earnings than Algoma Steel Group. Algoma Steel Group is trading at a lower price-to-earnings ratio than Gerdau, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of current recommendations for Gerdau and Algoma Steel Group, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Gerdau	0	3	1	0	2.25
Algoma Steel Group	1	3	0	0	1.75

Gerdau currently has a consensus target price of $4.60, indicating a potential upside of 25.85%. Given Gerdau’s stronger consensus rating and higher probable upside, analysts clearly believe Gerdau is more favorable than Algoma Steel Group.

Dividends

Gerdau pays an annual dividend of $0.20 per share and has a dividend yield of 5.5%. Algoma Steel Group pays an annual dividend of $0.10 per share and has a dividend yield of 2.3%. Gerdau pays out 74.1% of its earnings in the form of a dividend. Algoma Steel Group pays out -2.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Insider and Institutional Ownership

1.5% of Gerdau shares are held by institutional investors. Comparatively, 72.0% of Algoma Steel Group shares are held by institutional investors. 0.0% of Gerdau shares are held by company insiders. Comparatively, 7.8% of Algoma Steel Group shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Gerdau and Algoma Steel Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Gerdau	4.38%	5.92%	3.83%
Algoma Steel Group	-31.27%	-15.13%	-6.51%

Summary

Gerdau beats Algoma Steel Group on 12 of the 16 factors compared between the two stocks.

About Gerdau

Gerdau S.A., together with its subsidiaries, operates as a steel producer company. The company operates through Brazil Business, North America Business, South America Business, and Special Steel Business segments. It also provides semi-finished products, including billets, blooms, and slabs; common long rolled products, such as rebars, wire rods, merchant bars, light shapes, and profiles to the construction and manufacturing industries; drawn products comprising barbed and barbless fence wires, galvanized wires, fences, concrete reinforcing wire mesh, nails, and clamps for manufacturing, construction, and agricultural industries; and special steel products used in auto parts, light and heavy vehicles, and agricultural machinery, as well as in the oil and gas, wind energy, machinery and equipment, mining and rail, and other markets. In addition, the company offers flat products, such as hot-rolled steel coils and heavy plates; and resells flat steel products. Further, it operates mines that produce iron ore located in the Brazilian state of Minas Gerais. The company sells its products through independent distributors, direct sales from the mills, and its retail network. Gerdau S.A. was founded in 1901 and is based in São Paulo, Brazil.

About Algoma Steel Group

Algoma Steel Group Inc. produces and sells steel products primarily in North America. The company provides flat/sheet steel products, including temper rolling, cold rolled, hot-rolled pickled and oiled products, floor plate, and cut-to-length products for the automotive industry, hollow structural product manufacturers, and the light manufacturing and transportation industries; and plate steel products that consist of rolled, hot-rolled, and heat-treated for use in the construction or manufacture of railcars, buildings, bridges, off-highway equipment, storage tanks, ships, and military applications. Algoma Steel Group Inc. was founded in 1901 and is headquartered in Sault Ste. Marie, Canada.