Over the last few months, mining giant Evraz (LSE: EVR) has seen its share price mirror the worsening news surrounding Russia and Ukraine.
The stock was trading for more than 600p at the beginning of January. But the price sank to roughly 300p in the middle of February as tensions between the countries grew. Then, when Russia finally invaded Ukraine two weeks ago, the share price plummeted to around 50p.
Currently trading at around 80p (down more than 80% since the start of the year), is this mining giant too cheap to ignore?
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Toxic association
Lots of shares are struggling right now. But it seems to me that Evraz’s stock is under extraordinary pressure. This could be because Roman Abramovich, the company’s major shareholder, is believed to be a close friend of Vladimir Putin.
Russia also accounted for $5.5bn of the group’s total $14.1bn in revenues last year. It has a strong presence in the country and, like many steel companies, buys large quantities of raw materials there. Therefore, sanctions will hit Evraz disproportionately hard.
Even if the situation in Eastern Europe improves tomorrow, I doubt Evraz’s stock price will recover to its earlier heights. The war has damaged Russia’s image and many businesses may think twice before investing in the country again.
It’s not all bad news
Evraz is confronted with enormous obstacles, but there are some pieces of good news. For one, Evraz does not only operate in Russia. As previously stated, the area accounts for just around a third of the company’s sales. Asia, America, Africa, and Europe are home to the rest of the company’s businesses.
As far as we know, these enterprises are still operational and may be producing windfall profits as supply restrictions push up steel prices. This is something that investors should think about while evaluating a company. The corporation will have worth as long as these divisions continue to generate revenue for the group. But, because the situation is always changing, it is hard for me to quantify the worth of these procedures.
Share price outlook
In light of the events in Ukraine, I believe Evraz’s stock price will remain volatile for the foreseeable future. Companies with exposure to Eastern Europe are likely to stay unpopular with investors until we have more information on how the situation in the area will be resolved.
Nonetheless, if a solution to the crisis is found, the stock might skyrocket. If the uncertainty goes away, the company may be undervalued at its present levels.
Although the stock has potential in the best-case scenario, I will not add it to my portfolio. I believe there is now much too much uncertainty around the firm and the economy as a whole. I’m going to stay away from Evraz till things calm down.
