TPL

Texas Pacific Land ($TPL): Insiders' Year-Long Buying Spree Continues Despite 37% Stock Decline

06/27/2025 03:36

Texas Pacific Land ($TPL) is sending mixed signals to investors. While the stock has plummeted 37% from its November 2024 peak of around $1,700 to the current $1,075, key insiders have been relentlessly buying shares for the past year, drawing significant market attention. Texas Pacific Land is a unique company that owns approximately 870,000 acres of land in the Permian Basin, America's largest oil-producing region. Founded in 1888, the company operates a 'capital-light' business model where it doesn't directly participate in oil and gas production but collects royalties instead. When major oil companies like ExxonMobil, ConocoPhillips, and Occidental drill on TPL-owned land, they pay royalties. Additionally providing water treatment services, the company has achieved remarkable profitability with $727 million in revenue and a 63% net profit margin. The most striking pattern is the buying behavior of Director Murray Stahl. Also serving as Chairman of Horizon Kinetics, he has been purchasing 10-12 shares of TPL stock almost daily since August 2024. Whether the stock was at $800, at its $1,700 peak, or at the current $1,075, the buying continued unabated. Total purchase amounts reach several million dollars. What makes this more interesting is that these purchases are part of an automatic trading plan under SEC Rule 10b5-1. This means buying occurs mechanically according to a predetermined schedule, regardless of stock price movements. This represents a powerful signal of Stahl's confidence in TPL's long-term value. Horizon Kinetics, holding a 16% stake as a major shareholder, has also continued steady purchases. Conversely, selling has been extremely limited. Over the past year, virtually all insider transactions were purchases, except for some stock sales by the CFO and CAO. Why has the stock fallen 37% despite such insider buying? First, TPL's valuation is considerably high. The current P/E ratio of 53x is more than three times higher than typical energy companies' 10-15x multiples. Second, inflation concerns and uncertainty about the Trump administration's tariff policies have made investors nervous in the first half of 2025. Increased oil price volatility has also dampened sentiment toward the broader energy sector. However, TPL's fundamentals remain solid. With zero debt and debt-free operations, financial stability is excellent, and the company holds $460 million in cash. Return on equity (ROE) of 39% overwhelms most companies. As long as Permian Basin oil production continues to grow, royalty income should remain stable. Another factor investors should note is TPL's water business expansion. Water treatment services essential for oil drilling are experiencing rapid growth, and TPL is building a dominant position in this field. Recently, the company is even considering data center leasing business to secure new growth drivers. Looking at specific criteria investors should consider in the current situation, positive signals include WTI crude oil maintaining above $65, increased new drilling permits in the Permian Basin, and quarterly growth in water services revenue. Conversely, warning signs include prolonged crude oil decline below $60, reduced drilling activity by major oil companies, and increased environmental costs due to regulatory tightening. Scenario-wise outlook shows that in an optimistic scenario, TPL could serve as an infrastructure hub connecting traditional and renewable energy during the energy transition, potentially retesting $1,500. In the base scenario, the stock will likely fluctuate between $1,200-1,300 from current levels. However, in a risk scenario, a U.S. economic recession combined with a sharp oil price decline could pose downside risk to the $900s. In conclusion, TPL maintains long-term investment appeal based on its unique business model and solid fundamentals. Continuous insider buying demonstrates strong management confidence. However, given current high valuations, short-term volatility appears inevitable. While attractive for investors seeking long-term exposure to energy infrastructure, those pursuing short-term gains should approach with caution.