TPL

We rate Texas Pacific Land Corp (TPL) as a Reduce with a composite score of 43.5/100 at a current price of $532.15. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (81th percentile) and value (48th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (3th percentile) and stability (12th percentile) tempers our overall conviction. We assign a Narrow Moat rating (58/100), High uncertainty, and Exemplary capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Texas Pacific Land Corp holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 43.5/100 places it at rank #3050 in our full 7,333-stock universe. With a $21.5B market capitalization, Texas Pacific Land Corp operates at meaningful scale within the Finance, Insurance, And Real Estate sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 18%, though momentum at the 3th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 93% (+16.5pp vs sector) narrow to operating margins of 75% (+58.0pp vs sector) and net margins of 61.2%, yielding a gross-to-net conversion rate of 66%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $532.15, Texas Pacific Land Corp is trading near fair value based on current fundamentals. Our value factor score of 48/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 74.2x (a 522% premium to the sector median of 11.9x), EV/EBITDA of 60.4x (at a premium), P/B of 23.6x, P/S of 45.3x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a High uncertainty rating to Texas Pacific Land Corp. Key risk factors include below-average price stability (12th percentile), elevated valuation multiple (P/E 74.2x) that leaves limited margin for error. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: below-average price stability (12th percentile); elevated valuation multiple (P/E 74.2x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 12th percentile and quality factor at the 81th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 93% provide a buffer against cost pressures; conservative leverage (11% D/E) limits balance sheet risk. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Texas Pacific Land Corp's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 31.9%, disciplined leverage (11% D/E), best-in-class net margins of 61.2%. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — Texas Pacific Land Corp meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 0.69% dividend yield, and the combination of 28.6% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, Texas Pacific Land Corp receives a Reduce rating with a composite score of 43.5/100 (rank #3050 of 7,333). Our quantitative framework assigns a Narrow Moat (58/100, trend: stable), High uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 34/100.

Our analysis does not support a constructive view on Texas Pacific Land Corp at this time. The combination of the current quantitative profile, high uncertainty, and exemplary capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.