FANG Shares Sink 5.1% In A Day, Time To Buy The Stock?

We believe there is not much to fear in FANG stock given its overall Strong operating performance and financial condition. Hence, despite its Low valuation, this makes the stock look Risky. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $42 Bil in market cap, Diamondback Energy provides oil and gas development in Permian Basin’s Spraberry, Wolfcamp, and Bone Spring formations, with extensive acreage and interests in thousands of producing and royalty wells.

[1] Valuation Looks Low

This table highlights how FANG is valued vs broader market. For more details see: FANG Valuation Ratios

[2] Growth Is Very Strong

• Diamondback Energy has seen its top line grow at an average rate of 18.3% over the last 3 years
• Its revenues have grown 52% from $9.2 Bil to $14 Bil in the last 12 months
• Also, its quarterly revenues grew 47.6% to $3.7 Bil in the most recent quarter from $2.5 Bil a year ago.

This table highlights how FANG is growing vs broader market. For more details see: FANG Revenue Comparison

[3] Profitability Appears Very Strong

• FANG last 12 month operating income was $5.3 Bil representing operating margin of 37.8%
• With cash flow margin of 54.1%, it generated nearly $7.6 Bil in operating cash flow over this period
• For the same period, FANG generated nearly $3.8 Bil in net income, suggesting net margin of about 27.4%

This table highlights how FANG profitability vs broader market. For more details see: FANG Operating Income Comparison

[4] Financial Stability Looks Weak

• FANG Debt was $15 Bil at the end of the most recent quarter, while its current Market Cap is $42 Bil. This implies Debt-to-Equity Ratio of 36.4%
• FANG Cash (including cash equivalents) makes up $219 Mil of $72 Bil in total Assets. This yields a Cash-to-Assets Ratio of 0.3%

[4] Downturn Resilience Is Weak

FANG has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• FANG stock fell 33.5% from a high of $160.40 on 7 June 2022 to $106.71 on 14 July 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 4 November 2022
• Since then, the stock increased to a high of $210.94 on 17 July 2024 , and currently trades at $142.29

 
2020 Covid Pandemic

• FANG stock fell 83.9% from a high of $96.42 on 7 January 2020 to $15.56 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 1 July 2021

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read FANG Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.