What’s Happening With Transocean Stock?

Transocean (NYSE:RIG), an offshore drilling company, has seen its stock significantly underperform the broader S&P 500 index over the past twelve months, with a decline of 45% compared to the S&P 500’s 12% increase. The company is currently experiencing financial losses, exacerbated by rising cost inflation. Its overall financial position appears weak, and any deceleration in economic growth is expected to further suppress the demand for new oil and gas exploration projects. Despite what might seem like a very low valuation, several major concerns persist regarding RIG stock.

In this analysis, we provide a comprehensive comparison of Transocean’s current valuation against its operating performance in recent years, as well as an assessment of its current and historical financial condition. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative — having outperformed the S&P 500 and generated returns exceeding 91% since its inception. Separately, see – What’s Better – Circle Stock Or Bitcoin?

Image by Guilherme Reis from Pixabay

Valuation Snapshot

From a valuation perspective, Transocean stock currently appears inexpensive when considering its price relative to sales or profit. The company’s price-to-sales (P/S) ratio stands at 0.7, notably lower than the S&P 500’s figure of 3.0. Similarly, Transocean’s price-to-free cash flow (P/FCF) ratio is 5.7, significantly below the S&P 500’s 20.5.

Revenue Growth Performance

Despite its low valuation, Transocean has demonstrated considerable revenue growth in recent years. Over the last three years, its top line has expanded at an average annual rate of 11.7%, surpassing the S&P 500’s 5.5% increase. More recently, Transocean’s revenues grew by 24.4%, from $2.9 billion to $3.7 billion, over the past twelve months, compared to the S&P 500’s 5.5% growth. In its most recent quarter, quarterly revenues saw a substantial 18.7% increase, reaching $906 million from $763 million a year ago, significantly outperforming the S&P 500’s 4.8% improvement.

Profitability Analysis

However, Transocean’s profitability metrics present a stark contrast to its revenue growth. The company’s profit margins are worse than those of most companies within the Trefis coverage universe. Transocean’s Operating Income over the last four quarters totaled $431 million, resulting in a moderate Operating Margin of 11.7%, which is lower than the S&P 500’s 13.2%. Furthermore, its Operating Cash Flow (OCF) for the same period was $559 million, indicating a moderate OCF Margin of 15.2% compared to the S&P 500’s 14.9%. Most concerning is Transocean’s Net Income for the last four-quarter period, which registered at a $728 million loss, reflecting a very poor Net Income Margin of -19.9% against the S&P 500’s positive 11.6%.

Financial Stability

The financial stability of Transocean also appears very weak. As of the most recent quarter, the company’s debt stood at $6.6 billion, while its market capitalization was $2.7 billion (as of June 10, 2025). This translates to a very poor Debt-to-Equity Ratio of 244%, significantly higher than the S&P 500’s 19.9%, indicating a highly leveraged balance sheet. Additionally, cash and cash equivalents comprise only $263 million of Transocean’s $19 billion in total assets, yielding a poor Cash-to-Assets Ratio of 2.9%, well below the S&P 500’s 13.8%.

Downturn Resilience

Transocean’s stock has also demonstrated less resilience than the S&P 500 index during recent market downturns. For instance, during the Inflation Shock of 2022, RIG stock plummeted 53.5% from its high of $5.08 on July 2, 2021, to $2.36 on September 23, 2022, a sharper decline than the S&P 500’s peak-to-trough fall of 25.4%. While the stock did fully recover to its pre-crisis peak by January 9, 2023, and later increased to $8.80 by July 31, 2023, it currently trades around $3.10.

Similarly, during the COVID-19 Pandemic in 2020, RIG stock suffered a drastic 90.6% drop from a high of $7.17 on January 6, 2020, to $0.67 on October 30, 2020, far exceeding the S&P 500’s 33.9% decline. It took until February 7, 2023, for the stock to fully recover its pre-crisis peak.

Also, the Global Financial Crisis of 2008 saw RIG stock plunge 73.8% from $153.00 on May 20, 2008, to $40.04 on December 24, 2008, again a more severe drop than the S&P 500’s 56.8% decline. Notably, the stock has yet to recover to its pre-crisis high from 2008.

Outlook

In summary, Transocean’s performance across these parameters indicates a generally weak outlook. While its growth has been strong, this is overshadowed by very weak profitability and extremely weak financial stability. Its demonstrated lack of resilience during downturns further compounds the risk. Despite its current very low valuation, we believe that Transocean remains a risky pick. From a long-term perspective, the broader industry shift toward renewable energy sources and the increasing environmental regulations are likely to continue contributing to investor skepticism about the sustained viability of fossil fuel-dependent companies like Transocean, thereby weighing on its stock price growth.

Naturally, our assessment could be incorrect. A potential rebound in demand for oil and gas exploration projects could significantly benefit RIG stock. The company is also proactively streamlining its fleet, which includes an anticipated $1.2 billion impairment charge in Q2 for the disposal of two rigs (GSF Development Driller I and Discoverer Luanda) and the potential future disposal of two additional rigs (Development Driller III and Discoverer Inspiration). This strategic streamlining could potentially improve the company’s operational efficiency moving forward.

Nevertheless, given the persistent poor profitability and weak balance sheet, the overall risk associated with Transocean appears high. We believe there are more compelling investment strategies available in the market. Consider Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. 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.

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