Texas Pacific Land Trust (TPL, Financial) has been on a bumpy but stable ride over the past 12 months, with the stock price plunging in August and again this past February, jumping from $116.10 on Feb. 11 to its current price of $148. Last month the trust celebrated its 128th birthday. With more than a century of experience, 900,000 acres of land, perpetual royalties and growing earnings, is this a good time for us to scoop up a piece of Texas history? Let's take a look at this legendary Texas company and see if value is present for a company that has been on the stock market for the last 87 years.
Perpetual royalties
The trust has seen Texas-size earnings growth with the company experiencing a 10-year average earnings growth rate of 29.32%. Revenue has grown steadily as well, with a 10-year average growth rate of 22.66%. Margins are incredible as well. The trust currently has a gross profit margin of 100%, an operating margin of 94.70% and a net profit margin of 63%. With spectacular margins and zero debt on its balance sheet, the trust is poised for even more growth.
Return on equity for the Texas landowner has averaged 79.41% over the past 10 years -- superior to the average U.S. business earning a 10.77% return on equity. Texas Pacific's ROE is getting even more robust, as the company has seen a five-year average growth rate in return on equity of 12.12%. Looking at the balance sheet, key ratios for the trust shows phenomenal financial health, as the 2015 balance sheet showed zero debt and no long-term debt.
In a recent filing, the company stated "This was an excellent year for the Trust. Land sales totaling $22,616,635 and easement income of $19,726,900 were the highest in the Trust’s 128 year history. The Trust’s net income for the year 2015 was $50,038,507 compared to $34,765,020 in 2014, an increase of 43.9%. Total revenues amounted to $79,442,293, producing net income per sub-share of $6.10 versus $4.14 in 2014." It's impressive to find a 128-year-old company still growing earnings so quickly.
Old age, large land holdings as well as the position as the largest landowner in Texas gives the trust a durable competitive advantage. With perpetual royalty streams from oil and gas along with the occasional land sales, the trust has more even more potential to grow their revenue and earnings.
Time-tested fundamentals
The P/E ratio for Texas Pacific is 23.97, while the current average P/E for a real estate development company is 11.8. With Texas Pacific Land Trust, you are paying $23.98 for every $1 in earnings, while the average stock costs $21 for every $1 of its earnings. With the Trust's expected next year earnings growth rate of 29.32%, the company is nicely priced with upside potential.
Even at 128 years old, the Trust is still growing on all fronts, with close to one million acres of land and perpetual oil and gas royalties coming in every month. After a rally in the first week of February, the stock has jumped from $120 to $146. With strong earnings and solid share price growth, this trust has the potential to continue higher. If the price plunges, then it's time to add a piece of Texas history to your portfolio.
