When Sandridge Mississippian Trust II (NYSE:SDR) released its most recent earnings update (30 September 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Sandridge Mississippian Trust II has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see SDR has performed. Check out our latest analysis for Sandridge Mississippian Trust II
Was SDR’s recent earnings decline worse than the long-term trend and the industry?
For the purpose of this commentary, I like to 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 allows me to examine different stocks on a similar basis, using new information. For Sandridge Mississippian Trust II, the latest earnings is $11.9M, which compared to the prior year’s figure, has declined by a non-trivial -44.72%. Given that these figures may be fairly nearsighted, I have calculated an annualized five-year figure for SDR’s earnings, which stands at $60.9M. This doesn’t seem to paint a better picture, since earnings seem to have steadily been deteriorating over the longer term.
What could be happening here? Let’s examine what’s occurring with margins and whether the entire industry is experiencing the hit as well. Over the past few years, Sandridge Mississippian Trust II has, on average, delivered negative top- and bottom-line growth. As revenues dropped by more, expenses have been cut in order to sustain margins – not the most sustainable operating activity. Eyeballing growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 15.32% over the past twelve months, . This is a turnaround from a volatile drop of -7.47% in the previous couple of years. This means that, in the recent industry expansion, Sandridge Mississippian Trust II has not been able to reap as much as its average peer.
What does this mean?
Though Sandridge Mississippian Trust II’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience a drawn out 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 last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. 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.