It's nice to see the SandRidge Energy, Inc. (NYSE:SD) share price up 14% in a week. But only the myopic could ignore the astounding decline over three years. In that time the share price has melted like a snowball in the desert, down 90%. So we're relieved for long term holders to see a bit of uplift. But the more important question is whether the underlying business can justify a higher price still.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
SandRidge Energy wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Over the last three years, SandRidge Energy's revenue dropped 17% per year. That's definitely a weaker result than most pre-profit companies report. The swift share price decline at an annual compound rate of 24%, reflects this weak fundamental performance. We prefer leave it to clowns to try to catch falling knives, like this stock. There is a good reason that investors often describe buying a sharply falling stock price as 'trying to catch a falling knife'. Think about it.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
SandRidge Energy shareholders are down 64% for the year, but the broader market is up 24%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 24% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. It's always interesting to track share price performance over the longer term. But to understand SandRidge Energy better, we need to consider many other factors. For instance, we've identified 3 warning signs for SandRidge Energy (1 doesn't sit too well with us) that you should be aware of.
Of course SandRidge Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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