Since April 2021, the S&P 500 has delivered a total return of 64.7%. But one standout stock has more than doubled the market - over the past five years, Diamondback Energy has surged 149% to $188.80 per share. Its momentum hasn’t stopped as it’s also gained 32.9% in the last six months thanks to its solid quarterly results, beating the S&P by 30.3%.
Is now still a good time to buy FANG? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Are We Positive On FANG?
Sporting one of Wall Street's most memorable ticker symbols, Diamondback Energy (NASDAQ: FANG) drills for and produces oil and natural gas from underground rock formations in the Permian Basin of West Texas and New Mexico.
1. Skyrocketing Revenue Shows Strong Momentum
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Luckily, Diamondback Energy’s sales grew at an incredible 39.8% compounded annual growth rate over the last five years. Its growth beat the average energy upstream and integrated energy company and shows its offerings resonate with customers.
2. Elite Gross Margin Powers Best-In-Class Business Model
While energy gross margins can be distorted by commodity prices, hedging, and short-term cost swings, sustained margins across a full cycle reflect a producer’s underlying asset quality, infrastructure position, and cost structure.
Diamondback Energy, which averaged 81% gross margin over the last five years, exhibits enviable unit economics in the sector. It means the company will remain profitable at lower commodity prices than peers with inferior gross margins and serves as an advantaged starting point for ultimate operating profits and free cash flow generation. 
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Diamondback Energy has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the energy upstream and integrated energy sector, averaging an eye-popping 38.3% over the last five years.
Final Judgment
These are just a few reasons why we think Diamondback Energy is one of the best energy upstream and integrated energy companies out there, and with its shares beating the market recently, the stock trades at 11.7× forward P/E (or $188.80 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More Than Diamondback Energy
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