Viper Energy, Inc., operating under the ticker VNOM, was trading at $37.63 per share as of January 13. According to Yahoo Finance, its trailing P/E ratio stood at 15.49, while the forward P/E was 55.25.
VNOM is a Permian-focused energy royalty business that holds subsurface mineral rights across about 86,000 net royalty acres in the Permian Basin. It functions as an upstream capital provider, benefiting from production volumes and commodity prices without bearing operating or capital costs.
This structure allows for EBITDA margins above 90% and fully taxed free cash flow margins exceeding 70%, even in lower commodity price environments. At around $60 per barrel, VNOM offers a cash-on-cash free cash flow yield of over 10%, with an estimated payback period of ten to eleven years, supported by roughly seven years of proved reserves at current production rates.
Only a portion of VNOM's acreage is currently producing, leaving potential upside from future development, non-producing acreage, technological improvements, and commodity price recovery. The company maintains low leverage at approximately 1x net debt to EBITDA and covers interest expense multiple times, providing flexibility for counter-cyclical mineral acquisitions, share buybacks, and disciplined capital returns.
VNOM has committed to returning at least 75% of cash available for distribution to shareholders through dividends and repurchases, resulting in an approximately 8% current cash yield. Its relationship with sponsor Diamondback Energy offers a steady pipeline of potential mineral dropdowns, reinforcing its role as a consolidator in the Permian.
Despite executing well in a challenging environment and achieving greater scale through the Sitio merger, VNOM trades at a valuation discount to comparable royalty businesses, such as PrairieSky in Canada. This disconnect, combined with strong free cash flow generation and a declining share count, presents a long-term compounding opportunity with downside protection and upside potential.
Previously, a bullish thesis on LandBridge Company by Six Bravo in September 2024 highlighted regulatory arbitrage in produced water, long-dated data center optionality, and infrastructure-driven land monetization in the Permian. LB's stock price has appreciated by about 59.41% since that coverage. LLVI Capital shares a similar thesis on Viper Energy but emphasizes cash-yielding mineral royalties, capital returns, and near-term free cash flow compounding.
Viper Energy, Inc. is not on the list of the 30 Most Popular Stocks Among Hedge Funds. According to database records, 42 hedge fund portfolios held VNOM at the end of the third quarter, up from 41 in the previous quarter.