The Evraz (LSE: EVR) share price has somewhat tracked the worsening news around the Russia-Ukraine crisis over the past couple of months.
At the beginning of January, the stock was changing hands for more than 600p. As tensions with Russia increased over the following weeks, the stock fell to around 300p in the middle of February. When the crisis in Eastern Europe deteriorated two weeks ago, the stock plunged to a low of about 50p.
That said, it has since recovered to around 90p, as bargain hunters have bought into this struggling enterprise.
Uncertainty prevails
It is clear to me why the Evraz share price is facing so much pressure. Its largest shareholder is Roman Abramovich, who is reportedly a close friend of Vladimir Putin.
At the same time, the group generated $5.5bn of its total $14.1bn sales tally in Russia last year. It has a significant presence in the region and like many steel producers, acquires substantial volumes of raw materials from the area.
Even if the situation in Eastern Europe calms down tomorrow, I do not think the Evraz share price will ever return to previous highs. In my opinion, the damage has already been done to Russia. Any companies with exposure to the region may have to take significant losses on their investments.
But Evraz is not a pureplay Russian steel producer. As noted above, the company only generates around a third of its revenues from the region. The rest of its operations are located across Asia, America, Africa and Europe.
As steel prices rise due to supply constraints, these operations may be generating windfall profits. This is something investors need to consider when analysing the business. It is facing some significant challenges, but there are also opportunities to take advantage of.
As far as we know, these businesses are still functioning. As long as these divisions continue to produce income for the group, the company will have a value. Although, with the situation changing almost every day, it is impossible for me to estimate the value of these operations.
Evraz share price outlook
Considering all of the above, I think the Evraz share price will remain volatile for the foreseeable future. Until we have some clarity on how the situation in Eastern Europe will resolve itself, companies with exposure to the region are likely to remain out of favour with investors.
Still, if a solution to the situation does materialise, the stock could rise significantly. If the uncertainty disappears, the business could be undervalued at current levels.
Even though the stock may have potential in the best-case scenario, I am not going to buy it for my portfolio. I think there is just too much uncertainty surrounding the company and the economy in general right now. Until the situation stabilises, I will avoid Evraz.
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Rupert Hargreaves 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.
