Texas Pacific Land

Texas Pacific Land Corp receives a 2-star quantitative star rating, indicating our belief that this share class is a somewhat unattractive choice, and investors should look elsewhere for more fruitful opportunities. The stock currently trades at a minor 3% premium over our quantitative fair value estimate of $317.27 per share; however, this estimate should be taken with a pinch of salt due to its high uncertainty rating. We require the price/fair value ratio to move a certain amount before the star rating can change. This stability-enhancing buffer is in effect for this stock.

The company's valuation metrics decrease our fair value estimate. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. Reflecting the firm's valuation is its enterprise value to EBITDA ratio of 31.1, which falls in the top 20% compared with global peers. This suggests that the value of its enterprise value, or the value of its shares and debt, is a high multiple of the generated EBITDA. We believe this is a sign that shares could be expensive.

The firm's lack of profitability is an additional cause for concern. Companies with low profitability are often less resilient in recessions and are likely to generate weaker future cash flows for shareholders. The firm's enterprise value to free cash flow ratio of 274.7, for example, lies in the top 10% globally. This suggests limited cash flow is available for reinvestment or return to shareholders, which further promotes our unfavorable price/fair value ratio.

The company's wide quantitative moat rating suggests a strong ability to maintain superior profitability thanks to competitive advantages that could persist up to two decades. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.