It is a pleasure to report that the SandRidge Energy, Inc. (NYSE:SD) is up 130% in the last quarter. But only the myopic could ignore the astounding decline over three years. The share price has sunk like a leaky ship, down 73% in that time. So it's about time shareholders saw some gains. Of course the real question is whether the business can sustain a turnaround.
SandRidge Energy isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over the last three years, SandRidge Energy's revenue dropped 21% per year. That's definitely a weaker result than most pre-profit companies report. And as you might expect the share price has been weak too, dropping at a rate of 20% per year. 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.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
We're pleased to report that SandRidge Energy rewarded shareholders with a total shareholder return of 71% over the last year. This recent result is much better than the 20% drop suffered by shareholders each year (on average) over the last three. We're generally cautious about putting too much weigh on shorter term data, but the recent improvement is definitely a positive. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for SandRidge Energy that you should be aware of before investing here.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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