SandRidge Energy, Inc. (OTC: SDOC) began trading publicly after its initial public offering (IPO) in November 2007. SandRidge is a natural gas and oil company based in Oklahoma City. The company’s primary operations involve exploring for oil and natural gas and producing products that are recovered. SandRidge owns and operates drilling rigs, gas and oil gathering equipment, and a variety of marketing and processing facilities throughout the United States. PetroSource Energy Company, a SandRidge subsidiary, is responsible for product treatment and transportation. Most exploration and production operations occur in eastern and western Texas and along the Gulf Coast.
Due to costly operating missteps and power changing hands in 2013, along with the per barrel price of oil experiencing a huge decline, SandRidge stock has already been in a severe downtrend. Analysis of some of the company’s key financial statistics and ratios paints a helpful picture of the company’s overall rocky footing and the trouble that its stock could pose to investors.
SandRidge’s operating margin over the past decade reveals a key problem area for the firm. Due to the nature of the industry in which SandRidge operates, massive capital expenditures are periodically required, and it can be a challenge for revenues to keep up. SandRidge’s operating margin for the past 10 years has shown little consistency and, in fact, has fluctuated wildly and spent several years below the industry’s average of negative 93, at negative 113.2 in 2008 and negative 271.6 in 2009. The company’s negative 340.5 trailing 12-month operating margin, as of March 2016, is a clear indication that the company has been unable to recoup profit after covering operational expenses and is instead in a position of debt.
This failure to generate profit is also reflected in SandRidge’s net margin values, which closely track with the overall substandard performance of the company’s operating margin. In 2008 and 2009, SandRidge’s balance sheet reveals negative 123.33 and negative 301.91 net margins. While the values did trend above zero for four years, they dropped again to negative 30.73. With a March 2016 trailing 12-month net margin of negative 289.79, SandRidge’s struggle to generate any type of profit is clearly an ongoing and, as yet unmet, challenge.
Earnings Per Share
Down continues to be the general trend for SandRidge, evidenced again by the company’s earnings-per-share (EPS) history over the past decade. From 2005 to 2009, EPS values dropped consistently, falling to negative 9.36 and negative 10.20 respectively in 2008 and 2009, years that seemed to be, across the board, significantly troublesome years for the firm. Values jumped up slightly above zero for the next four years only to drop to negative 1.27 in 2013, another difficult year for the company. SandRidge’s negative 5.74 EPS as of March 2016 is continued proof of failure to generate positive returns for investors.
The Future of SandRidge
Despite some troubling values for key financial ratios, SandRidge has some promising features for investors to note. The company’s three-year average revenue growth of 3.3 is well above the industry’s negative 17.5 average. While this growth in revenue is not likely to bring SandRidge out of its financial hole in the near future, an upward trend in revenue and toward profitability is a promising start. SandRidge shares are best-suited for investors with high degrees of risk tolerance and enough capital to withstand the almost certain losses that the firm may continue to experience in at least the near term. Falling per barrel oil prices have also served to drop SandRidge’s stock to bargain basement prices, but an upturn in oil prices could just as easily benefit the company. At 11 cents per share, investors who can withstand the riskiness of this stock could clean up if SandRidge is able to weather its current financial difficulties and eventually make a sustained move in the direction of solid profitability.