SandRidge Permian Trust Stock Shows Every Sign Of Being Possible Value Trap
- By GF Value
The stock of SandRidge Permian Trust (OTCPK:PERS, 30-year Financials) is believed to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $0.4602 per share and the market cap of $24.2 million, SandRidge Permian Trust stock shows every sign of being possible value trap. GF Value for SandRidge Permian Trust is shown in the chart below.
The reason we think that SandRidge Permian Trust stock might be a value trap is because
Link: These companies may deliever higher future returns at reduced risk.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. SandRidge Permian Trust has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Oil & Gas industry. GuruFocus ranks the overall financial strength of SandRidge Permian Trust at 8 out of 10, which indicates that the financial strength of SandRidge Permian Trust is strong. This is the debt and cash of SandRidge Permian Trust over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. SandRidge Permian Trust has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $14.6 million and earnings of $0.125 a share. Its operating margin of 78.68% better than 99% of the companies in Oil & Gas industry. Overall, GuruFocus ranks SandRidge Permian Trust's profitability as fair. This is the revenue and net income of SandRidge Permian Trust over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of SandRidge Permian Trust is -20.3%, which ranks worse than 82% of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is -22.3%, which ranks worse than 75% of the companies in Oil & Gas industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, SandRidge Permian Trust's ROIC is 33.05 while its WACC came in at 9.05. The historical ROIC vs WACC comparison of SandRidge Permian Trust is shown below:
Overall, The stock of SandRidge Permian Trust (OTCPK:PERS, 30-year Financials) is believed to be possible value trap. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 75% of the companies in Oil & Gas industry. To learn more about SandRidge Permian Trust stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
