Texas Pacific Land Stock To $638?

Texas Pacific Land (TPL) stock has fallen 66% during the past day, and is currently trading at $302.80. Our multi-factor assessment suggests that it may be time to reduce exposure to TPL stock. We are primarily concerned current valuation and a price of $638 may not be out of reach. We believe there is not much to fear in TPL stock given its overall Strong operating performance and financial condition. But given its Very High valuation, the stock appears Relatively Expensive.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $7.0 Bil in market cap, Texas Pacific Land provides land and resource management of 880,000 acres and full-service water operations to operators in the Permian Basin.

[1] Valuation Looks Very High

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

[2] Growth Is Strong

• Texas Pacific Land has seen its top line grow at an average rate of 5.7% over the last 3 years
• Its revenues have grown 12% from $687 Mil to $772 Mil in the last 12 months
• Also, its quarterly revenues grew 17.0% to $203 Mil in the most recent quarter from $174 Mil a year ago.

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

[3] Profitability Appears Very Strong

• TPL last 12 month operating income was $585 Mil representing operating margin of 75.8%
• With cash flow margin of 72.3%, it generated nearly $559 Mil in operating cash flow over this period
• For the same period, TPL generated nearly $476 Mil in net income, suggesting net margin of about 61.7%

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

[4] Financial Stability Looks Very Strong

• TPL Debt was $17 Mil at the end of the most recent quarter, while its current Market Cap is $7.0 Bil. This implies Debt-to-Equity Ratio of 0.08%
• TPL Cash (including cash equivalents) makes up $532 Mil of $1.5 Bil in total Assets. This yields a Cash-to-Assets Ratio of 34.9%

[5] Downturn Resilience Is Very Weak

TPL 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

• TPL stock fell 52.8% from a high of $905.02 on 7 November 2022 to $427.55 on 23 June 2023 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 19 September 2024
• Since then, the stock increased to a high of $1,730.00 on 24 November 2024 , and currently trades at $302.80

 
2020 Covid Pandemic

• TPL stock fell 62.4% from a high of $273.12 on 8 January 2020 to $102.78 on 23 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 11 January 2021

 
2008 Global Financial Crisis

• TPL stock fell 73.2% from a high of $20.50 on 29 June 2007 to $5.50 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 21 March 2013

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 TPL Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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