Viper Energy overview and recent performance snapshot
Viper Energy (VNOM) gives you exposure to mineral and royalty interests in the Permian Basin, with US$1,578 million in revenue and a reported net income loss of US$47 million.
The stock last closed at US$47.70, with total returns of about 23% year to date and 24.58% over the past year, and monthly and past 3 months performance has also been positive.
See our latest analysis for Viper Energy.
After a softer patch in the last week, with a 1-day share price return of 2.13% lower and a 7-day share price return of 1.36% lower, Viper Energy still shows building momentum, supported by a 30-day share price return of 2.70%, a 90-day share price return of 5.79%, and a 24.58% total shareholder return over the past year from a latest share price of US$47.70.
If you are comparing Viper Energy with other opportunities in the energy supply chain, it can help to broaden your watchlist to 34 power grid technology and infrastructure stocks
With Viper Energy delivering double digit returns over the past year but still reporting a net income loss, the key question is whether the stock trades below its underlying value or whether the market is already pricing in future growth.
Most Popular Narrative: 49.1% Overvalued
Idle’s narrative pegs Viper Energy’s fair value at $32 per share, well below the last close of $47.70, which creates a clear valuation gap to unpack.
This is one of three major benefits the company brings to the table: As I just briefly explained, the company has a high-margin business model, as it does not incur drilling costs. The Permian is home to almost half of all onshore horizontal rigs in the United States. Essentially, it is the place to be for oil and gas production with elevated reserves and low breakeven prices. In a recent article, I showed the chart below. As we can see, the Permian has mostly undeveloped wells, which bodes well for future production. Image Bloomberg Related to the second advantage, the Permian also benefits from decent infrastructure, a favorable regulatory environment, and lower operational risks compared to emerging basins. Nonetheless, because of elevated production, more infrastructure is needed in the years ahead, which is one of the reasons why I am also very bullish on the midstream industry.
Curious how a high margin, royalty style model and long term volume expectations in the Permian translate into that $32 figure? The narrative leans heavily on projected revenue growth, profitability assumptions and the earnings multiple it thinks those cash flows could justify. The exact mix of those inputs is where the story really gets interesting.
Result: Fair Value of $32 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, the current net income loss and any shift in Permian drilling activity or infrastructure build out could quickly challenge the assumptions behind that 49.1% overvaluation call.
Find out about the key risks to this Viper Energy narrative.
Another take on VNOM’s valuation
Idle’s $32 fair value leans on revenue growth, profit margins and a future P/E of 18.5x to argue VNOM looks 49.1% overvalued against the current $47.70 price, yet Simply Wall St’s DCF output of $124.48 per share points to the stock trading at a steep discount. Which story appears more realistic to you?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Viper Energy for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Are you seeing mixed signals on VNOM? If you want to act while the debate is fresh, review the data for yourself and check out the 3 key rewards and 2 important warning signs
Looking for more investment ideas?
If VNOM has your attention, do not stop here. Broaden your watchlist now so you are not late to the next opportunity that fits your style.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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