Between the end of February and the beginning of March, the Evraz (LSE:EVR) share price collapsed by over 90%. This is among the fastest declines ever experienced by a FTSE 100 company. And later this month, the stock will be removed from the index.
But today, shares are up by more than 40%! What’s going on? And should I be considering this business for my portfolio?
The volatile Evraz share price
As a reminder, this is a mining company that focuses primarily on extracting coal, iron, and vanadium. The latter is particularly interesting due to its applications in renewable energy technologies, such as large-capacity batteries.
Given the demand and, in turn, the price of these materials is rising, why did Evraz shares collapse last week? That’s simple. All of its operations are located in Russia. And once the invasion began in Ukraine and the world looked on in horror as Russian actions, the shares tanked as investors ran for the hills to try and protect their wealth.
The location of the mines doesn’t appear to be near the area of conflict. Therefore, I feel it’s unlikely that any military activity will result in direct disruptions to operations. However, with sanctions being placed against Russia, the situation could still be pretty problematic for the mining group.
Apart from potentially making it difficult to export resources, the decision to cut off Russian banks from the SWIFT payment network makes funding the development and operations of mining sites exceptionally challenging. With that in mind, it’s not hard to understand why the Evraz share price tanked.
But this morning, it skyrocketed. So the question is, why?
Time for a comeback?
The short-term future of the Evraz share price seems to be tied to the ongoing geopolitical situation in Ukraine. And this morning, round three of peace negotiations began between the two states. It seems investors (just like everyone else) are hopeful for a peaceful resolution to the ongoing crisis.
If this assumption is correct, I think it’s more than likely the Evraz share price could make a full recovery within a few weeks. After all, once sanctions are lifted, the company can resume its operations as usual. And looking at the 2021 results before this tragic conflict started, performance was quite encouraging.
The rising demand for metals has allowed the group to significantly improve profitability. This effect has only been amplified courtesy of inflation. And subsequently, underlying profit margins climbed from 22.7% in 2020 to 35.4% today. Combining this with soaring revenue as pandemic-related disruptions loosen their grip, the firm’s free cash flow more than doubled. Needless to say, this is very positive news.
Time to buy?
As encouraging as last year’s financial performance has been, I’m doubtful the firm can continue to grow if the conflict between Russia and Ukraine doesn’t come to a speedy end. As it stands, there remain plenty of unknowns. And it’s entirely possible that negotiations fail to lead to a peaceful resolution.
With the fate of the Evraz share price entirely out of management’s hands, this is not a stock I’m interested in adding to my portfolio.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.