Is SandRidge Energy Buffett Worthy?
Sometimes the big oil guys can be wrong, however it is important to consider their picks and suggestions. There are a number of things Warren Buffett must be able to check off his list before buying a stock. SandRidge Energy is a stock that may have the potential to be Buffett worthy. Let’s go through the list with Ilan Moscovitz.
1. Earnings power
SandRidge has had difficulty producing earnings and free cash flow over the past five years. However, it’s important to note that the large net-income losses in 2008 and 2009 were due to asset impairment charges and that the free cash flow shortfalls are due to major capital investments the company has been making. Operating cash flow has been fairly steady.
2. Return on equity and debt
Return on equity is a great metric for measuring both management’s effectiveness and the strength of a company’s competitive advantage or disadvantage — a classic Buffett consideration. When considering return on equity, it’s important to make sure a company doesn’t have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it is.
CEO Tom Ward has been at the job since 2006. Prior to that, he was CEO of Integra Energy and founded Chesapeake Energy in 1989.
Though new technologies are being developed in the industry, oil and gas exploration and production isn’t particularly susceptible to technological disruption.
So, is SD worthly of the Buffett title? From the looks of the research, I would say not. We do like this stock, but it isn’t ready for the Buffett title. This stock has potential, it just may be in a slump right now.
Quotes taken from report by Ilan Moscovitz, Read the entire article here.
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