Will SandRidge Squeeze the Energy Out of Shorts?

With shares of SandRidge Energy (NYSE:SD) trading at around $7.28 is SD an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

SandRidge was trading at $5.80 only five days ago. There has been quite a move since then. The original move most likely took place because a large shareholder launched a website demanding a change in management. The overall message was that management at SandRidge doesn’t have shareholders’ best interests in mind. This bold move has led to a shareholder revolt against the company, which in turn has led to a short squeeze. As more shorts get nervous and cover their positions, the stock continues to rise. Considering there is (or was) a 15.10%, this will be a relatively large short squeeze.

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If you’re looking at SandRidge from a macro point of view, then the information below might be of interest to you.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for SandRidge Energy is normal, but there is plenty of room for improvement. There is also room for improvement on the balance sheet, but it’s better than what we see at other companies in the industry, including Chesapeake Energy Corporation (NYSE:CHK) and Apache (NYSE:APA). These two companies don’t offer direct comparisons, but they’re staples in the industry.

Debt-To-Equity

Cash

Long-Term Debt

SD

1.02

$673.68 Million

$4.30 Billion

CHK

.92

$298 Million

$16.22 Billion

APA

.38

$318 Million

$11.63 Billion

 

T = Technicals on the Stock Chart Are Mixed

SandRidge Energy has performed poorly over the past three years. However, this has been a trend throughout most of the industry.

1 Month

Year-To-Date

1 Year

3 Year

SD

-4.29%

-14.97%

-20.82%

-16.54%

CHK

-1.88%

-21.35%

-31.33%

-21.22%

APA

-4.29%

-14.97%

-20.82%

-16.54%

 

At $7.28, SandRidge is currently trading above all its averages.

50-Day SMA

6.42

100-Day SMA

6.59

200-Day SMA

6.86

 

E = Earnings and Revenue Are Sporadic

Predicting what will happen with SandRidge Energy in regards to earnings and revenue has proven to be a complete waste of time. This is a company that has been on the verge of failure more than once, but has always bounced back. Then, just when you think there is real hope, things head south once again. What longs need to understand is that this is normal for a young company in this industry.

2007

2008

2009

2010

2011

Revenue ($)in millions

677.45

1.182B

591.04

931.74

1.415B

Diluted EPS ($)

.09

-9.36

-10.20

.52

.13

 

Revenue and earnings have also been sporadic on a quarterly basis.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in millions

363.75

373.84

381.64

478.43

532.80

Diluted EPS ($)

1.16

-.66

-.58

1.47

-.39

 

T = Trends Support the Industry

The trend seems to have come out of nowhere, but there has been a lot of mergers and acquisitions talk recently. There has even been some action. SandRidge is often thrown into these conversations. Some people speculate that a potential acquisition is the real reason for the run-up in the stock price this week. While that’s possible, it’s highly unlikely. However, if the chatter alone can help drive the stock price temporarily, then that’s not such a bad thing. If you’re long and strong, then it doesn’t mean much at all.

Conclusion

SandRidge produces more than 470.6 million barrels of oil equivalent, it has 5,043 gross producing wells, it leases nearly 2.7 million acres, and there are 36 rigs drilling. Therefore, this company intends to be around for a long time. T. Boone Pickens has also allocated 4.9% of his portfolio to SandRidge. That’s over $4.9 million. This is definitely a good sign in regards to long-term prospects.

Today’s volume is more than double the norm, but it’s highly likely that buying will become exhausted soon if there isn’t any substantial news.

There is too much unknown about SandRidge Energy right now, which is why it’s rated as a WAIT AND SEE.

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