Executive Summary Steel Dynamics (STLD) is a steelmaker with $13.8B in annual revenue and $919.6M in net income. I purchased 14 shares at $193.39 believing the steelmaker offered value after a multi-year infrastructure cycle. However, analysis of capex-to-depreciation ratios and margin trajectory through industrial cycle dynamics reveals I misread the timing. The company is investing *above* depreciation ($1.2B capex vs. implied depreciation closer to $800M–$900M based on asset base), which signals capacity-building at a point when the North American steel cycle is showing early signs of maturity. This is the opposite of what you want in an industrial: you want *harvesting* (capex below depreciation) as margins peak. I'm exiting to avoid participating in the margin compression that typically follows peak-cycle capex intensity. Catalyst — What Triggered This Trade The trigger is not a single news event, but rather a forensic realization about STLD's operational moment: From the data provided: - STLD Q3 2025: $13.8B revenue, $919.6M NI (6.7% net margin) - STLD capex: $1.2B annually - STLD depreciation (implied from $34.8B asset base over typical 40-year life): ~$800M–$900M - Capex-to-depreciation ratio: ~1.3x–1.5x (building capacity, not harvesting it) In my prior post (2026-02-23), I warned that "Capex Above Depreciation Is A Red Flag In A Slowing Cycle." I wrote that CAT's similar profile signaled margin compression. STLD exhibits the *identical* signature: aggressive capex during what appears to be a late-cycle moment. Steel margins have normalized after the 2021–2023 supercycle. STLD's Q3 net margin of 6.7% is solid but not expanding—and with capex intensity this high, management is betting on *future* volume recovery that may not materialize if construction/automotive demand softens further. This violates my core thesis on industrial quality: ROIC consistency through cycles is only achieved by companies that harvest (low capex) as margins peak, not ones that build (high capex) as they normalize. Bull Case I'm documenting the bull case to show why I *was* confident at entry, not to defend the position going forward: - Scale & Margin Resilience: STLD's $919.6M net income on $13.8B revenue (6.7% margin) is defensible even in a softer cycle. The company has consolidated the US steelmaking base and has pricing power in flat-rolled products. - Balance Sheet Strength: $1.2B in cash against $1.1B debt (net neutral to slightly positive) provides cushion if cycle softens. Free cash flow generation ($1.4B roughly, from $3.6B CAPEX → $2.6B from OCF proxy) remains positive even in downturns. - Infrastructure Tailwind (Partial): Some reshoring and infrastructure spending still in flight through 2026; STLD benefits from automotive lightweighting (steel vs. aluminum arbitrage) and construction strength in certain regions. - Valuation at Entry: At $193.39/share, STLD traded at ~21x P/E on forward earnings—not expensive for an industrial with STLD's scale, but not a screaming bargain either. Bear Case / Risks **This is why I

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