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Sandridge Energy (SD) – Free Report, for Ask Matt Readers, Highlighting a Major Red Flag in the Footnotes

Thursday, August 19th, 2010

Here is our free report on Sandridge Energy for Ask Matt readers.

Sandridge gets a Dangerous Rating mainly because management’s track record for value creation is very poor. Our analysis of the Financial Footnotes reveals a major RED FLAG: the company has written off over $3.4bn in assets in just the last two years. That is a big number compared to the company’s market cap of roughly $950mm and it Total Assets of about $2.8bn. Such a high level of disposal of company assets does not indicate that management is good at creating value or profits from the company’s investments. Indeed, management has written off nearly $1.30 for every $1.00 of net assets on the books. I call that moving the business in the “wrong” direction as management’s overriding imperative is to create future cash flows from of an asset that exceed the cost of the asset…that is how value is created. This management team, on the other hand, has been destroying the value of the assets it acquires.

All the details are in our report on SD. For the asset write-offs and their impact on economic earnings see Appendix 3 in our report. Our Risk/Reward rating is on page 1.

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