Is it too late to buy Cleveland-Cliffs stock as shares spike after earnings beat?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Oct 23, 2021
  • Cleveland-Cliffs shares on Friday spiked nearly 13% after announcing solid FQ3 results.
  • The company reported its most recent quarterly results before markets opened, beating analyst expectations.
  • CLF stock trades at an attractive forward P/E ratio of 5.32.

On Friday, Cleveland-Cliffs Inc. (NYSE:CLF) shares rallied nearly 13% after announcing its most recent quarterly results. The company reported its fiscal Q3 revenue and earnings before markets opened, exceeding the consensus for Street expectations. The Cleveland, OH-based steelmaker said it expects steel prices to rise next year, boosting the long-term outlook.

Cleveland-Cliffs posted fiscal Q3 GAAP earnings per share of $2.33, beating the average for analyst estimates of $2.24. On the other hand, revenue for the quarter skyrocketed by 263.6% from the same quarter a year ago to $6 billion, $370 million ahead of estimates. 

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The company now expects FY2021 revenue in the region of $21 billion, compared to $2 billion reported in 2019, thus demonstrating solid growth.

CLF looks undervalued

From a valuation perspective, Cleveland-Cliffs shares trade at exciting trailing 12-month and forward P/E ratios of 15.56 and 5.32, respectively. Therefore, the stock could be a compelling option for value investors.

On the other hand, although analysts forecast earnings to decline by more than 130% this year before falling further by 26% next year, they also expect CLF to deliver average annual EPS growth of about 27.43% for the next five years.

Therefore, it could also gain the attention of long-term investors.

Source – TradingView

Technically, Cleveland-Cliffs shares appear to have recently spiked to complete a bullish breakout from an ascending channel formation. As a result, the stock has rallied closer to the overbought conditions of the 14-day RSI.

Therefore, with a pullback seemingly inevitable, investors could target downward profits at about $22.01, or lower at $20.65. On the other hand, if the rally continues, the stock could find resistance at $25.10, or higher at $26.33.

Time to take some profits?

In summary, although Cleveland-Cliffs shares still trade at exciting valuation multiples, the recent spike may have created an opportunity for short-term investors to take some profits.

Therefore, given the expected decline in earnings this year and next year, it may be best to wait for a pullback before buying the stock.

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