SD article - short term trade.
SandRidge Energy (SD) is an independent oil and natural gas company. Its stock has lost 45% of its value over the last 3 months and now trades with a market cap of $2.46 billion. The company has posted $1.22 billion in revenue with a profit margin of 1.44% during the last 12 months. It has $4.61 million in cash with assets that total $5.6 billion and $2.9 billion in total debt.
I can think of several reasons why not to purchase this stock. It has horrible profit margins, it returns a negative margin on assets, it has less than $5 million in cash, its costs are very high, it needs a high price of oil to post profits, and its debt to assets ratio is over 50%. Yet the company has made some strides in the right direction with its most recent earnings and future guidance. During its most recent quarter the company announced revenue and EPS that doubled including net income that increased by nearly 400% year-over-year. It's also drastically lowered its debt to assets ratio over the last year from near 90% to its current ratio of just above 50%. The company recently lowered its full-year production guidance yet its new guidance is still significantly higher that its original guidance at the beginning of the year. And its full-year production guidance for next year is 27.7MMBoe which is much higher than its projection for this year at 23.9 MMBoe.
The stock still presents a high level of risk, as its 98% more volatile than the market, and there are several fundamental red flags. Yet I believe the company is showing improvements, just not by the margins in which investors would like to see, therefore at its current price of $5.96 I believe this stock would make a good short term investment with a small position. Another reason I believe the stock is a good short term buy is because of the price of crude, near $80, I don't expect crude to drop below $75 yet I believe it's very likely that it returns to a price over $100, possibly by the end of the year. And when it happens, I believe that SD will be posting gains as the price of crude rises since the stock tends to trade higher as the price of crude goes up.