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With A -28.72% Earnings Drop, Did SandRidge Mississippian Trust I (NYSE:SDT) Really Underperform?

Arjun Bhatia

After reading SandRidge Mississippian Trust I’s (NYSE:SDT) latest earnings update (31 March 2018), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether SDT has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways. Check out our latest analysis for SandRidge Mississippian Trust I

Was SDT weak performance lately part of a long-term decline?

I prefer to use the ‘latest twelve-month’ data, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method enables me to analyze different stocks in a uniform manner using the most relevant data points. For SandRidge Mississippian Trust I, its latest trailing-twelve-month earnings is US$5.76M, which, in comparison to the previous year’s figure, has dropped by -28.72%. Given that these figures are somewhat nearsighted, I have created an annualized five-year value for SDT’s earnings, which stands at US$40.00M This doesn’t seem to paint a better picture, as earnings seem to have gradually been falling over the longer term.

NYSE:SDT Income Statement Jun 18th 18
NYSE:SDT Income Statement Jun 18th 18

Why could this be happening? Well, let’s look at what’s going on with margins and if the rest of the industry is feeling the heat. In the past few years, SandRidge Mississippian Trust I has, on average, delivered negative top- and bottom-line growth. As revenues dropped by more, expenses have been lowered in order to maintain margins – not the most sustainable operating activity. Inspecting growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 25.00% in the prior twelve months, . This is a change from a volatile drop of -5.08% in the past couple of years. This means that, in the recent industry expansion, SandRidge Mississippian Trust I has not been able to leverage it as much as its industry peers.

What does this mean?

SandRidge Mississippian Trust I’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Typically companies that endure a drawn out period of reduction in earnings are going through some sort of reinvestment phase with the aim of keeping up with the recent industry growth and disruption. I suggest you continue to research SandRidge Mississippian Trust I to get a more holistic view of the stock by looking at:

  1. Financial Health: Is SDT’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 SDT 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 SDT 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 March 2018. 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.