Texas Pacific Land Corporation TPL has been a standout performer in 2024, not only as the best Oil/Energy stock in the S&P 500 but also as the 7th best overall. With a staggering 127.3% year-to-date gain, it has outperformed even high-flying names like Netflix NFLX and Tesla TSLA. Netflix has gained some 90%, while Zacks Rank #2 (Buy) Tesla has provided an 83% return this year.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
TPL, NFLX, TSLA Year-to-Date Stock Performance
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Investors now wonder whether TPL’s meteoric rise can be replicated in 2025 or if the stock has reached its peak.
Company Profile
Texas Pacific Land is a unique player in the energy sector, owning around 900,000 acres in the Permian Basin, one of the most prolific oil-producing regions in the world. Unlike traditional exploration companies, TPL operates an asset-light model, generating income through oil and gas royalties, water sales and surface leases. This diversified revenue mix, along with its debt-free balance sheet, has cemented TPL’s position as a resilient and profitable energy business.
Record Production Fuels Growth
TPL achieved a record in the third quarter of 2024, with oil and gas royalty production reaching 28,300 barrels of oil equivalent per day, a 13% sequential increase. This growth was driven by robust activity in the Midland Basin and Northern Delaware regions, where operators like ExxonMobil XOM and Occidental Petroleum OXY are active. This high-margin revenue stream from oil and gas royalties, which account for more than half of TPL's income, remains a cornerstone of its financial strength, even in a volatile commodity market.
Image Source: Texas Pacific Land Corporation
Expanding Water Business
TPL’s water-related operations are another growth driver, with produced water royalties increasing 46% year over year in the third quarter. This segment, which is expected to generate $100 million in revenues in 2024, benefits from strategic agreements that require minimal capital expenditure. Additionally, TPL’s ability to monetize treated water sales alongside royalties positions it well to address growing water demands in the Permian Basin. These dual-income streams enhance operational efficiency and support long-term revenue stability.
Strategic Acquisitions Enhance Growth Potential
TPL invested $500 million in acquisitions in 2024, adding 50,000 acres of surface rights and expanding its royalty acreage in the Permian Basin. These deals are expected to contribute an additional 30,000 barrels of oil equivalent per day, boosting current production by 10%. With favorable pricing structures delivering double-digit cash flow yields at $70 oil, these acquisitions strengthen TPL’s revenue base and extend its growth runway.
Challenges Ahead
Despite its successes, TPL faces headwinds that may temper its growth trajectory. Declining realized commodity prices — oil prices fell 8% and natural gas prices dropped 65% year over year in the third quarter of 2024 — pose a risk to royalty revenues. Additionally, while TPL has explored non-energy revenue streams like data centers and renewable energy, these initiatives remain in early development and contribute little to current earnings. The company’s high valuation, with a forward price/earnings ratio of 52.50, also raises concerns. Such a premium is difficult to sustain without extraordinary growth, exposing the stock to potential corrections if expectations are not met.
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Conclusion
Texas Pacific Land’s stellar performance in 2024 reflects its strong fundamentals, strategic acquisitions and robust operational execution. While the stock remains a compelling investment due to its unique business model and diversified revenue streams, replicating 2024’s 126% gains in 2025 may be challenging. Investors can consider buying TPL stock, but whether it can deliver similar returns next year will depend on its ability to navigate valuation pressures, commodity price volatility and the execution of its growth initiatives.
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Texas Pacific Land Corporation (TPL) : Free Stock Analysis Report
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