We came across a bullish thesis on Granite Ridge Resources, Inc. (GRNT) on Value Degen’s Substack by Unemployed Value Degen. In this article we will summarize the bulls’ thesis on GRNT. GRNT Technologies, Inc. share was trading at $5.94 as of Sept 30th. GRNT’s trailing and forward P/E were 13.81 and 7.62 respectively according to Yahoo Finance.
A vertical offshore oil rig in the middle of a calm sea, symbolizing the company’s oil and gas exploration.
Granite Ridge Resources (GRNT) operates in the Oil& Gas E&P industry, it is a non-operating oil and gas exploration and production company, meaning it does not engage in drilling itself but partners with operators to fund capital expenditures. Unlike royalty companies that rely on others to drill, GRNT follows a “controlling non-op co” model, seeking partners that allow it to dictate the drilling plan. This positions GRNT to exert more influence over operations than traditional royalty companies, while keeping its SG&A costs minimal.
In the oil and gas industry, GRNT’s model allows it to benefit from the operational expertise of strategic partners while managing capital allocation. Competitors like Panhandle Resources (PHX) and Black Stone Minerals (BSM) employ different approaches to oil and gas royalties, but Granite Ridge’s strategy aims to balance active control with capital efficiency. GRNT maintains conservative leverage at 50%, enhancing shareholder returns with some risk protection.
From its cashflow from operations the company generated $123 million in 2023, which it used for paying dividends, buying back shares, and investing in growth. With a 14% free cash flow yield and a 7% dividend yield, the company looks like a strong option for income-focused investors. In 2022, GRNT earned $1.97 per share, giving it a price-to-earnings ratio of about 3x, making it appealing, especially if oil prices rise. The company prudently safeguards itself against unpredictable oil and gas prices by hedging 50-60% of its production.
Granite Ridge looks promising as management believes the company’s value could increase, with its enterprise value to EBITDA ratio expected to rise from 2.8x to between 3.6x and 4.1x, which could lead to a 23-32% upside. What makes it even more interesting is insider buying which portrays confidence, and significant growth potential as well as that the management is working to increase liquidity, which could attract larger investors and support the stock’s growth.
Granite Ridge Resources, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 9 hedge fund portfolios held GRNT at the end of the second quarter which was 11 in the previous quarter. While we acknowledge the risk and potential of GRNT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GRNT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.