Has Samson Oil & Gas Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Samson Oil & Gas (NYSE: SSN  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Samson Oil & Gas.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (5.1%) Fail
  1-Year Revenue Growth > 12% 143.5% Pass
Margins Gross Margin > 35% 47.8% Pass
  Net Margin > 15% (144.7%) Fail
Balance Sheet Debt to Equity < 50% 0% Pass
  Current Ratio > 1.3 7.67 Pass
Opportunities Return on Equity > 15% (17.0%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0% Fail
  5-Year Dividend Growth > 10% 0% Fail
       
  Total Score   4 out of 9

Source: S&P Capital IQ. NM = not meaningful due to negative earnings. Total score = number of passes.

Since we looked at Samson Oil & Gas last year, the driller has dropped a couple points. Plunging margins and returns on equity are responsible for the score reduction, and the stock hasn't done shareholders any favors over the past year either.

Samson is at a tough stage in its development. On one hand, it's putting a bunch of money into exploration both in the Bakken region as well as Wyoming's Hawk Springs. That leaves it particularly susceptible to failures, such as the dry well that it spent $4.5 million on last year.

But the successes of other companies in the region seem to point to better days ahead for Samson. Kodiak Oil & Gas (AMEX: KOG  ) finally ramped up production in the Bakken last year and got a nice boost in its stock price for its efforts, while the much larger Continental Resources (NYSE: CLR  ) has taken a huge stake in the region in search of profits after being one of the pioneers in the area. At the same time, Chesapeake Energy (NYSE: CHK  ) and Devon Energy are nearby neighbors to Samson's Hawk Springs stake.

One way that Samson might provide returns for shareholders is if a larger player makes a takeover bid for the company. Statoil (NYSE: STO  ) got itself into the Bakken by buying out Brigham Exploration, and with Samson's stock in the doldrums, it might look like an attractive play for other companies trying to increase their footprint in the region.

To keep improving, Samson needs to get production up and running. Once that happens, the company will look much different -- and if it's successful, it could push Samson a lot closer to perfection in the years to come.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

If you like energy stocks, we've got a stock idea that could knock your socks off. Read about it right here in The Motley Fool's special free report on the energy industry and its best prospects -- it's free but only available for a limited time, so click here today.

Click here to add Samson Oil & Gas to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Devon Energy. Motley Fool newsletter services have recommended buying shares of Devon Energy, Statoil, and Chesapeake Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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