Strangely, the Lone Star State is a significant investment. The Texas Pacific Land Corp (NYSE: TPL) is one of the fastest-growing stocks around.
To elaborate, the Texas Pacific Land Corporation (TPL) is one of the biggest landowners in Texas. Mr. Market is bullish on Texas. Texas Pacific’s share price rose from $459.56 on 21 September 2020 to $1,307.40 on 23 September 2020.
Moreover, Fortune named the Texas Pacific Land Trust (TPL) the third fastest-growing company in the United States in 2020. So what is Texas Pacific and is it worth $1,307.40 a share?
What is the Texas Pacific Land Corporation?
Texas Pacific began in 1871 as a railway company. Congress granted the Texas Pacific, or T&P, a charter for a transcontinental railroad that never reached California. The Texas Pacific ran out of money and never completed the line because of the Long Depression of the 1870s.
However, the T&P built 972 miles of track between 1871 and 1881. That track entitled the Texas pacific to 3.5 million acres of land. To explain, in the 19th Century the US and Canadian governments encouraged railroad development by giving enormous of land to railway builders. In 1888, the T&P’s land was put into the Texas Pacific Land Trust (TPL) which developed into today’s Texas Pacific Land Corporation.
Today, Texas Pacific owns a vast amount of revenue producing acreage in 19 Texas counties. That property generates revenues through oil and gas royalties, material sales, easements, land sales, and commercial leases. Texas Pacific also makes money form water services. Texas Pacific water services include water surfacing, produced water disposal, produced water gathering recycling and treatment, water tracking well testing, and water infrastructure development.
Many of Texas Pacific’s lands are in the Permian Basin. The Permian Basin is home to some of America’s most productive oil and gas fields.
Is the Texas Pacific Land Corporation making money?
The Texas Pacific Land Corporation (TPL) makes little money. It reported quarterly revenues of $95.93 million on 30 June 2021.
Similarly, Texas Pacific reported a quarterly gross profit of $75.25 million and no quarterly operating income on 30 June 2020. The last quarterly operating income for Texas Pacific I could find was $56.75 million on 30 September 2020. However, Texas Pacific reported a quarterly net income of $57.05 million on 30 June 2021.
Texas Pacific is experiencing enormous revenue growth. Stockrow estimates Texas Pacific’s revenues grew by 75.8% in the quarter ending on 30 June 2021. The quarterly revenues grew from $54.57 million on 30 June 2020, but fell from $113.33 million on 31 December 2019.
Similarly, the quarterly gross profit grew from $48.73 million on 30 June 2020. Plus, the quarterly net income rose from $27.58 million on 30 June.
However, Texas Pacific experienced five quarters of revenue shrinkage between 31 March 2020 and 31 March 2021. For example, revenues fell by 49.51% in the quarter ending on 31 March 2020 an 12.88% in the quarter ending on 31 March 2021. Thus, instead of growing, Texas Pacific was making up for pandemic losses.
How Much Cash Does Texas Pacific Generate?
Texas Pacific (TPL) generates small amounts of cash. For instance, Texas Pacific reported a quarterly operating cash flow of $44.10 million on 30 June 2021.
Notably, they reported no quarterly ending cash flow for Texas Pacific on 30 June 2020. In fact, the last quarterly ending cash flow for Texas Pacific I found was $57.40 million on 30 September 2020. Conversely, Texas Pacific’s cash and short-term investments grew from $258.36 million on 30 June 2020 to $329.88 million on 30 June 2021.
On the bright side, Texas Pacific has almost no debt. It reported Total Debts of $2.46 million on 30 June 2021. The Total debt fell from $3.14 million on 30 June 2020. In addition, Texas Pacific reported two quarters of no financing cash flow and three quarters of negative financing cash flow over the last year. That means, Texas Pacific finished the pandemic without borrowing money, which indicates it is COVID-19 resistant.
What Value Does Texas Pacific have?
Texas Pacific’s value is low for a publicly traded corporation, but it is growing. Texas Pacific (NYSE: TPL) had $633.84 million in Total Assets on 30 June 2021. The Total Assets grew from $553.60 million on 30 June 2020.
Hence, I consider Texas Pacific grossly overvalued. I think the popularity of Texas the state could drive Texas Pacific’s growth. Texas leads the nation in raw population growth,The Houston Chronicle boasts. The US Census Bureau estimates 373,965 people moved to Texas in 2020.
Moreover, five Texas cities Dallas, Austin, Fort Worth, Houston, and San Antonio grew their populations by over 100,000 people between 2010 and 2020, The US Census Bureau estimates. The highest growth is in the Dallas-Fort Worth area.
I think the growth and rising housing prices in Texas could drive Texas Pacific’s share price.The average home sales price in the Dallas-Fort Worth area rose by 21.19% between 2020 and 2021, Norada Real Estate Investments estimates. Conversely, the median home price in the Dallas Fort Worth area rose by 20.83% in 2021.
Is Texas Pacific a Good stock?
I consider The Texas Pacific Land Corporation (TPL) is a horrendously overpriced stock. There is nothing in the company’s financial data to support the $1,307.04 price.
However, Texas Pacific pays an attractive dividend. For example, Texas Pacific paid a $2.75 quarterly dividend on September 15, 2021. That quarterly dividend will fall to 75.6₵ on 15 December 2021. The 75.6₵ dividends will continue on 15 March 2022, 15 June 2022, and 15 September 2022.
Overall, Texas offered an annual dividend of $8.25 and a dividend yield of 0.62% on 23 September 2021, Dividend.com estimates.
I think Texas Pacific is a terrible stock people need to avoid. It has little cash, a ludicrous stock price, no margin of safety, and shrinking dividends. I conclude Texas Pacific is in a bubble that is driven by a dangerous Texas real estate bubble.
Originally published at https://marketmadhouse.com on September 23, 2021.