Reliance Steel (RS): Profit Margins Decline Challenges Bullish Community Narratives

Reliance (NYSE:RS) posted net profit margins of 5.2%, down from 7.4% a year ago, highlighting a decrease in profitability. While the company’s earnings have grown at just 0.9% per year on average over the past five years, forecasts now call for earnings growth of 11.1% per year and revenue to expand by 3% annually. Recent margin compression and slower profit acceleration set the stage for investors to weigh the company’s high earnings quality and attractive dividend against shifting growth trends.

See our full analysis for Reliance.

Next up, we will see how these fresh earnings numbers measure up against the widely discussed narratives shaping sentiment around Reliance. This approach sets the facts alongside the storylines investors are following.

See what the community is saying about Reliance

Share Count Shrinking by 2.8% Per Year

• Analysts project Reliance will reduce its shares outstanding by 2.82% per year for the next three years, providing a tailwind for earnings per share growth even if revenue growth remains modest.
• Analysts' consensus view sees this buyback-driven share reduction, along with healthy cash flows, as supporting shareholder returns and likely boosting reported EPS.
  • Despite moderate revenue growth of 3.7% annually, consistent repurchases are expected to help raise the per-share value proposition.
  • Comparatively, bulls highlight that high cash flow generation and aggressive buybacks support upside in EPS, even as market growth slows.
• See how this EPS trend shapes the full narrative in our balanced coverage. 📊 Read the full Reliance Consensus Narrative.

Profit Margins Seen Rebounding to 6.8%

• Consensus expects profit margins to rise from 5.4% currently to 6.8% over three years, implying operating leverage could improve even as markets normalize.
• According to analysts' consensus view, several catalysts support a margin rebound:
  • Strategic investments in value-added processing and next-day logistics are credited with boosting gross margins, strengthening Reliance’s position against industry cycles.
  • However, persistent cost inflation, such as higher raw material and wage expenses, remains a key risk that could dilute the pace of recovery if passed on only partially to customers.

Valuation Trades at Discount to Peers But Premium to DCF

• Reliance trades at a Price-to-Earnings ratio of 19.7x, cheaper than both the US Metals and Mining industry average of 24.3x and its peer group average of 34x, though the current share price of $273.74 sits above the DCF fair value of $235.37.
• Analysts' consensus narrative points out:
  • This relative discount versus sector multiples underpins the view that Reliance is attractively valued, yet the premium to DCF fair value means near-term upside relies on execution driving long-term earnings toward forecast levels.
  • With an analyst target price of 328.5 (about 20% above the last share price), the market is being asked to project considerable confidence in both margin improvement and continued buybacks, rather than simply relying on today’s earnings power.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Reliance on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Have a unique take on these results? Share your perspective and craft a narrative in just a few minutes. Do it your way

A good starting point is our analysis highlighting 5 key rewards investors are optimistic about regarding Reliance.

See What Else Is Out There

Reliance’s recent results highlight slowing revenue growth, recent margin pressure, and a reliance on share buybacks to support future earnings per share.

For investors seeking steadier progress, use our stable growth stocks screener (2089 results) to find companies delivering more consistent earnings and revenue growth through different market cycles.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com