Over the past six months, Viper Energy’s shares (currently trading at $45.05) have posted a disappointing 5.7% loss, well below the S&P 500’s 9.1% gain. This may have investors wondering how to approach the situation.
Given the weaker price action, is this a buying opportunity for VNOM? Find out in our full research report, it’s free.
Why are we positive on VNOM?
Operating a business model that requires no drilling rigs or production equipment of its own, Viper Energy (NASDAQ: VNOM) owns mineral and royalty interests in oil and gas properties, collecting revenue when operators extract resources from land.
1. Skyrocketing revenue shows strong momentum
A company’s long-term performance can give signals about its business quality. Even a bad business, especially in a cyclical industry, can shine for a year or so, but a top-tier one should exhibit resilience through cycles. Over the last five years, Viper Energy grew its sales at an incredible 42.3% compounded annual growth rate. Its growth surpassed 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.
Viper Energy, which averaged 100% 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. EBITDA margin rising, profits up
Adjusted EBITDA margin strips out accounting distortions tied to depletion and historical drilling spend, providing a clearer view of the cash-generating power of the underlying asset base before financing and reinvestment decisions.
Analyzing the trend in its profitability, Viper Energy’s EBITDA margin rose by 3.8 percentage points over the last year, as its sales growth gave it operating leverage. Its EBITDA margin for the trailing 12 months was 94.2%.
Final judgment
These are just a few reasons Viper Energy is a high-quality business worth owning. After the recent drawdown, the stock trades at 16.1× forward P/E (or $45.05 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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