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With A -27.94% Earnings Drop, Is Sandridge Mississippian Trust II’s (NYSE:SDR) A Concern?

Dale Lombardi

For investors with a long-term horizon, assessing earnings trend over time and against industry benchmarks is more valuable than looking at a single earnings announcement in one point in time. Investors may find my commentary, albeit very high-level and brief, on Sandridge Mississippian Trust II (NYSE:SDR) useful as an attempt to give more color around how Sandridge Mississippian Trust II is currently performing. Check out our latest analysis for Sandridge Mississippian Trust II

How Well Did SDR Perform?

For the most up-to-date info, I use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This blend enables me to analyze various companies on a more comparable basis, using the most relevant data points. For Sandridge Mississippian Trust II, its latest earnings (trailing twelve month) is US$11.60M, which, relative to the prior year’s level, has plunged by -27.94%. Since these values may be fairly short-term, I have estimated an annualized five-year value for SDR’s earnings, which stands at US$58.76M This doesn’t seem to paint a better picture, as earnings seem to have steadily been deteriorating over time.

NYSE:SDR Income Statement Mar 16th 18

Why could this be happening? Let’s examine what’s occurring with margins and if the whole industry is facing the same headwind. Although revenue growth over the past couple of years, has been negative, earnings growth has been falling by even more, meaning Sandridge Mississippian Trust II has been growing its expenses. This hurts margins and earnings, and is not a sustainable practice. Eyeballing growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 26.52% over the previous twelve months, . This is a change from a volatile drop of -8.89% in the previous couple of years. This suggests that, in the recent industry expansion, Sandridge Mississippian Trust II has not been able to leverage it as much as its average peer.

What does this mean?

Sandridge Mississippian Trust II’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Usually companies that face an extended period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. I recommend you continue to research Sandridge Mississippian Trust II to get a more holistic view of the stock by looking at:

  • 1. Financial Health: Is SDR’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  • 2. Valuation: What is SDR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SDR is currently mispriced by the market.
  • 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.