SandRidge Mississippian Trust I (NYSE:SDT), a USD$36.68M small-cap, operates in the oil and gas industry which has seen a continued decline in oil prices since 2014. However, energy-sector analysts are forecasting for the entire industry, a strong double-digit growth of 24.71% in the upcoming year, and an enormous growth of 43.94% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the oil and gas sector right now. Today, I will analyse the industry outlook, and also determine whether SDT is a laggard or leader relative to its energy sector peers. View our latest analysis for SandRidge Mississippian Trust I
What’s the catalyst for SDT’s sector growth?
In the past five years, the oil and gas industry growth has been negative 40%, as a result of the oil price collapse. Although profitability is always a key metric, in the oil and gas industry, growth in production and reserves has often been more important. Over the past year, the industry saw negative growth of -58.71%, underperforming the US market growth of 4.49%. SDT lags the pack with its negative growth rate of -79.16% over the past year, which indicates the company has been growing at a slower pace than its energy peers. As the company trails the rest of the industry in terms of growth, SDT may also be a cheaper stock relative to its peers.
Is SDT and the sector relatively cheap?
The oil and gas industry is trading at a PE ratio of 21x, relatively similar to the rest of the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.54% on equities compared to the market’s 9.99%, potentially illustrative of a turnaround. On the stock-level, SDT is trading at a lower PE ratio of 6x, making it cheaper than the average oil and gas stock. In terms of returns, SDT generated 11.48% in the past year, which is 2.94% over the oil and gas sector.
What this means for you:
Are you a shareholder? SDT has been an oil and gas industry laggard in the past year. This is possibly reflected in the PE ratio, with the stock trading below its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto SDT as part of your portfolio, or maybe increase your holding. If you’re bearish on the stock, now may not be the best time to sell!
Are you a potential investor? If SDT has been on your watchlist for a while, now may be the time to dig deeper into the stock. Although the stock delivered lower growth relative to its peers, SDT is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at SDT’s other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into SandRidge Mississippian Trust I’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other energy stocks instead? Use our free playform to see my list of over 300 other oil and gas companies trading on the market.
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.