If current profits are maintained for any period of time longer than a year or so, the stock price will certainly have to adjust (barring any capital-destroying deployment of the money).
X's balance sheet seems to be in good shape too, judging from some numbers such as Current Ratio (have been closer to 2 than 1 for a long time) and Quick Ratio, as well as nowadays quite low D/E (as equity has built up from the recent profits).
The question is, as Elroy has pointed out, is this a business which should be run in a developed economy, long term? Or is it like the textile industry in the 70's? It appears that there are good reasons to have certain material industries, such as oil, close to home, as it is expensive and tricky to transport it. Steel, however, doesn't seem quite so "place-bound". There seem to be pretty massive underlying pressure to move such production to lower-cost countries (judging from profitability – wage and other costs seem to be to high in relation to (normal) earnings).
Therefore, as Elroy again has noted, X should most likely pay out a large part, if not all, of its earnings to its shareholders. It does not seem at all clear that the business adds to society, net of all costs. Steel, traditional auto manufacturing etc. should probably be nearly 100% outsourced, just like textile production (and other "highly commoditized commodities") is. Higher skill production, like EV's, is probably a much better idea to retain (like e.g. Tesla does, in large part). |
