United States Steel Corporation (NYSE:X) is undoubtedly one of the more risky companies to invest in right now. However, the company does appear to be well-placed to ride a recovery, without too much downside financial risk.

United States Steel

It will come as no surprise when I say that the market for steel within the U.S. is in the doldrums. Cheaper imports from South America and China, as well as the falling prices of raw materials are just some of the factors that have worked against domestic producers during the last five years. Moreover, United States Steel’s management has come out to say that they do not expect the steel market within the U.S. to stage a full recovery until 2015.

United States Steel focused on domestic market

United States Steel Corporation (NYSE:X), as the name suggests is highly focused on the US domestic market for steel, with 22 production facilities within North America, 1 in Europe and 1 in Brazil.

Having said that, this lack of diversification has actually been beneficial for the company recently, as rising auto sales and increasing in activity within the housing market has brought demand back to the domestic steel market. This has allowed United States Steel Corporation (NYSE:X) to return to a cash flow positive position. In particular, for the first 6 months of this year, United States Steel had a free cash flow of $184 million excluding borrowings.

Additionally, over the last four quarters, United States Steel has been cash flow positive and reduced net debt by $688 million. The company has issued a token dividend of $0.05 per share since 2010, which has been covered at least twice by operating cash flow each quarter for the last four.

United States Steel’s financial situation

The company’s financial situation is robust. Current assets have covered current liabilities on average 1.5 times for each of the last four quarters and net debt currently stands at 27% of assets. Book value is worth $24.1 per share.

So, United States Steel Corporation (NYSE:X) is financially stable, trading below book value and still generating cash. Additionally, the company is well placed to ride out the economic recover within the U.S. That said, some investors could be put off the company by the fact that it is not profitable. Although, it is key to remember the effect of depreciation on the company’s income statement, due to the large amount of capital stock the company owns.

A more accurate comparison would be against the company’s peers on an EV/Revenue and EV/EBITDA measures. Surprisingly, on both metrics, United States Steel peers to be one the cheapest amongst its peers. On average, United States Steel’s largest peers trade at an EV/Revenue multiple of 0.8 and EV/EBITDA multiple of 8.8. US’ multiples stand at 0.3 and 5.8 respectively, indicating that the company trades at a 59% and 35% discount to its sector peers.

So overall United States Steel Corporation (NYSE:X) offers an interesting case for investment. On one hand, the company is financially stable, trading below book and cash generative. On the other hand, the company is active in a highly cyclical industry, which is still struggling to return to growth. However, having said all of that, the company’s robust financial position and covered dividend lead me to believe that any patient investor willing to take the risk and ride out the recovery will be well rewarded.