What a time it’s been for Permian Resources. In the past six months alone, the company’s stock price has increased by a massive 63.9%, reaching $20.67 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is PR a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Are We Positive On PR?
Controlling roughly 450,000 net acres in America's most productive oil patch, Permian Resources (NYSE: PR) is an oil and natural gas producer that drills wells and extracts hydrocarbons from underground reservoirs in West Texas and New Mexico.
1. Skyrocketing Revenue Shows Strong Momentum
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Luckily, Permian Resources’s sales grew at an incredible 54.5% compounded annual growth rate over the last five years. Its growth beat 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
In a single quarter or year, gross margins in the sector can swing wildly due to commodity prices, hedging, or changes in labor costs. Over a multi-year period across different points in the cycle, gross margin differences can signal whether a company is a structurally-advantaged producer (“rock” quality, takeaway, operating costs) or not.
Permian Resources, which averaged 75.6% 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. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Permian Resources has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the energy upstream and integrated energy sector, averaging 27.3% over the last five years.
Final Judgment
These are just a few reasons why Permian Resources is one of the best energy upstream and integrated energy companies out there, and after the recent rally, the stock trades at 11.5× forward P/E (or $20.67 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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