Why United States Steel Corporation's Shares Plunged 27% Today

By Travis Hoium Markets Fool.com

What happened

Continue Reading Below

Shares of steel manufacturer United States Steel Corporation (NYSE: X) plunged a whopping 26.5% in trading Wednesday after the company reported earnings for the first quarter. At 12:10 p.m. EDT shares were still down 25.7% on the day.

So what

Revenue was up 16.4% in the first quarter, to $2.73 billion, but net loss was $180 million, or $1.03 per share, despite rising metal prices. Part of the problem is that management hasn't invested in improving capital assets during the industry downturn and is now left with higher production costs than competitors, now that prices are improving.

Image source: Getty Images.

To fix its deficiencies, management said it is accelerating equipment upgrades, a process that will take three to four years. And it was this realization that U.S. Steel is still years away from improving financials that drove the sell-off today.

Continue Reading Below

Now what

U.S. Steel has been one of the leaders in lobbying for tariffs on steel imports, but it seems to have lost focus on its own business. While others were investing in improving technology and costs during the downturn, U.S. Steel was trying to save money and put off investments. That's coming back to haunt the company now and could lead to losses for years to come. Unless metals prices increase dramatically, I don't see a positive financial result ahead for the company. Thus, right now this is a stock I would stay away from, despite today's sell-off.

10 stocks we like better than United States Steel
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and United States Steel wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 3, 2017

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.