Diamondback Energy Inc (FANG)

Conclusion

Diamondback Energy is an independent oil and natural gas producer that develops unconventional onshore reserves in the Permian Basin of West Texas and New Mexico. On 2026-11-09 the share price was 178.17 USD, giving a market capitalisation of 49.75 billion USD.

The verdict is undervalued. Today's price-to-earnings ratio of 22.9 compares with a ten-year median of 10.3, and enterprise value to EBITDA of 7.7 compares with 6.4. Price to free cash flow of 7.7 compares with a median of 13.8. The discounted cash flow gives 979.59 USD per share at a discount rate of 8.87%. The fair value band runs from 465.06 to 697.58 USD with a midpoint of 581.32 USD, a margin of safety of 226.3% at the current price. The reverse DCF implies revenue growth of -7.5% a year, against five-year revenue growth of 39.8% a year actually delivered. The fair value from historical multiples is 183.05 USD.

What holds the case up is free cash flow of 6.46 billion USD over the last twelve months, net debt to EBITDA of 1.57 and interest coverage of 10.9. What could break it is a return on invested capital of 4.4% against a weighted cost of capital of 7.9%, earnings per share falling 38.6% a year over three years, and a current ratio of 0.55.

Financial health

The colour is red, because the current ratio of 0.55 and the Altman Z-score of 1.59 weigh on it, while net debt to EBITDA of 1.57 and interest coverage of 10.9 support it. The quick ratio is 0.51 and debt to equity is 0.34. Net debt to EBITDA and interest coverage are both within comfortable ranges, so the balance sheet is leveraged but serviceable. The Altman Z-score of 1.59 falls in the distress zone, but the model was designed for manufacturers and this company is an oil producer, so the result should be read with that in mind. Insolvency risk: low, about 0.14% by the estimate of the Ohlson model over one to two years.

Earnings quality

The colour is red, because free cash flow conversion over five years of 37.6% and a share count that has grown 12.9% a year over five years weigh on it, while trailing conversion of 297.6% and six earnings beats in eight quarters give some support. Trailing free cash flow after stock-based compensation is 6.46 billion USD, but stock-based compensation relative to revenue is not available. The accrual ratio is -0.1026. The Piotroski score is 4 of 9. The Beneish M-score is not available. Average earnings surprise over eight quarters is 3.9%. Analysts have raised the current-year earnings estimate by 14.6% over 90 days, with 19 upward and 4 downward revisions in the last 30 days. The next-year estimate has risen 21.1% over 90 days, but it implies earnings growth of -6.6%.

Profitability

The colour is red, because the gap between return on invested capital and the cost of capital and the fall in operating margin weigh on it, while the operating margin of 32.2% and the net margin of 11.7% support it. Gross margin is 47.0% against a ten-year median of 48.2%. Operating margin is 32.2% against a median of 43.2%, and net margin is 11.7% against 31.3%. Return on invested capital is 4.4%, against a weighted cost of capital of 7.9%, giving a return on invested capital minus cost of capital of -3.5%. Its five-year median is 14.0%. Return on equity is 5.6%. The DuPont split shows a net margin of 11.1%, an asset turnover of 0.21 and an equity multiplier of 1.92, so leverage adds to the return on equity but the underlying return on assets is low.

Growth

The colour is red, because the three-year earnings decline weighs on it, while long-run revenue growth supports it. Revenue compound growth is 16.2% over three years, 39.8% over five years and 42.1% over ten years. Revenue grew in 8 of the last 10 years. Earnings per share compound growth is -38.6% over three years. Free cash flow per share grew 4.3% a year over three years and 107.7% a year over five years. The next-year earnings estimate implies a decline, so growth in per-share earnings is currently weak even though revenue has expanded strongly.

Valuation

The colour is green, because the valuation signal is favourable, and the verdict is undervalued. The price-to-earnings ratio of 22.9 is a premium of 123.4% to its ten-year median of 10.3, and enterprise value to EBITDA of 7.7 is a premium of 21.5% to 6.4. Price to free cash flow of 7.7 is a discount of 44.2% to 13.8, price to sales of 2.7 is a discount of 17.2% to 3.2, and price to book of 1.28 is a discount of 2.7% to 1.31. The free cash flow yield is 13.0%. The discounted cash flow gives 979.59 USD per share, at a discount rate of 8.87%, and 63.3% of that value sits in the terminal value. The fair value band is an order-of-magnitude estimate built on fixed assumptions, not a price target. The dividend yield is 3.0% and the forward yield is 2.6%, with a payout of 22.9% of free cash flow.

Risks

The weakest numbers are the current ratio of 0.55 and the Altman Z-score of 1.59, which leave little cushion for short-term obligations. Return on invested capital of 4.4% below the cost of capital of 7.9% means that the company currently earns less on its investments than they cost, and this would continue to erode value if it persists. The three-year decline in earnings per share of 38.6% and the next-year estimate of -6.6% growth would weaken the case if they become lasting. Share count growth of 12.9% a year dilutes shareholders. Stock-based compensation relative to revenue and the Beneish M-score are not available. This analysis has no debt maturity schedule and no revenue split by segment, and the discounted cash flow rests heavily on the terminal value, so it should be read as indicative only.