Is ArcelorMittal's Attractive P/E Ratio a Hidden Buy Signal Amid Strong Earnings and Strategic Growth?

ArcelorMittal, the world's largest steelmaker, has long been a polarizing name in value investing circles. With a forward price-to-earnings (P/E) ratio of 9.84-well below the S&P 500's 24.4 average-the stock appears undervalued on paper. But does this discount reflect a compelling opportunity, or does it mask structural risks in a cyclical industry? A closer look at the company's Q3 2025 earnings, strategic acquisitions, and financial resilience suggests the former. For investors willing to navigate the steel sector's volatility, ArcelorMittal's combination of earnings momentum, margin-enhancing growth, and disciplined capital allocation may justify a bullish case.

Earnings Momentum and Margin Resilience

ArcelorMittal's Q3 2025 results underscore its ability to generate consistent cash flow despite a challenging macroeconomic environment. The company reported adjusted net income of $0.5 billion and adjusted earnings per share (EPS) of $0.62, with total revenue of $15.7 billion. While revenue dipped slightly from Q2's $15.9 billion, the decline was offset by robust liquidity and a $262 million share repurchase program, signaling management's confidence in its capital structure.

However, the EBITDA margin per ton contracted to $111 in Q3 from $135 in Q2, a trend attributed to seasonal weakness and geopolitical headwinds. This contraction, while concerning, must be contextualized. The steel industry is inherently cyclical, and ArcelorMittal's Q3 performance reflects a strategic pivot toward long-term structural improvements. For instance, the company's recent acquisitions-Calvert, Tuper, and AMTBA-are already contributing to EBITDA normalization. By Q2 2025, these deals had added $0.2 billion in EBITDA, with a projected $0.7 billion contribution by year-end.

Strategic Acquisitions: A Catalyst for Margin Expansion

ArcelorMittal's aggressive M&A strategy has been a cornerstone of its value proposition. The acquisitions of Calvert and Tuper, in particular, are poised to unlock significant EBITDA potential. Calvert, a high-tech steelmaking facility in the U.S., strengthens ArcelorMittal's position in the automotive market, while Tuper enhances its footprint in Brazil's pipe industry. Collectively, these deals are expected to add $2.1 billion in EBITDA by 2026.

Critics may argue that the $1.5 billion increase in net debt since Q2 2025-driven by these acquisitions-raises leverage concerns. Yet, the company's liquidity remains robust at $11.2 billion, supported by $5.7 billion in cash and equivalents. Moreover, ArcelorMittal has demonstrated discipline in managing working capital. A $1.9 billion investment in working capital over the first nine months of 2025 is expected to unwind in Q4, boosting free cash flow. This flexibility allows the company to reinvest in growth while maintaining a strong balance sheet.

Financial Strength and Value Investing Alignment

From a value investing perspective, ArcelorMittal's financial metrics are mixed. Its debt-to-equity ratio of 52.7% as of June 30, 2025, exceeds the S&P 500 average of 20.3%, raising red flags for conservative investors. However, the company's ability to generate consistent cash flow-$1.5 billion in investable cash over the past 12 months-mitigates some of these risks. Notably, $1.2 billion of this cash has been reinvested in strategic projects, while $0.8 billion has been returned to shareholders via dividends and buybacks.

The low P/E ratio of 9.84 further enhances its appeal. While steel is a cyclical sector, ArcelorMittal's earnings resilience-driven by global demand for infrastructure and automotive steel-suggests the market is underestimating its long-term potential. For example, the commissioning of a 1.5 million-ton electric arc furnace at Calvert is expected to boost efficiency and reduce costs in the U.S. market. Such projects align with value investing principles by enhancing intrinsic value over time.

Risks and the Path Forward

No investment in ArcelorMittal is without risk. The steel industry remains vulnerable to trade wars, tariffs, and commodity price swings. Additionally, the company's high leverage could amplify losses during a downturn. However, ArcelorMittal's strategic focus on margin expansion, geographic diversification, and capital efficiency provides a buffer. Its Q3 2025 liquidity position ensures it can weather short-term volatility while executing its growth agenda.

For value investors, the key question is whether the market's skepticism is justified. ArcelorMittal's earnings momentum, strategic acquisitions, and disciplined capital allocation suggest the answer is no. While the P/E ratio may appear attractive, it is not a standalone metric-it reflects a company's ability to sustain and grow earnings. In ArcelorMittal's case, the combination of normalized EBITDA, a strong liquidity profile, and a clear path to margin expansion makes a compelling case for a long-term investment.