Permian Basin Royalty Trust: High Uncertainty - High Risk

2025-06-03 08:41:54 ET

Summary

• Permian Basin Royalty Trust remains a sell due to weak business performance, low yield, and a poor oil market outlook.
• Current 2.0% distribution yield is well below historical averages, signaling overvaluation despite a 60% price drop from its peak.
• No signs of improvement in operating costs or oil prices; upside risks are speculative and not a sound investment strategy.
• Long-term underperformance versus the S&P 500 highlights the risk; I recommend waiting for a sector downturn before considering entry.

In late 2020, I recommended buying Permian Basin Royalty Trust ( PBT ) for its attractive yield and its expected recovery from the coronavirus crisis. Since that article, the stock has vastly outperformed the S&P 500, as it has offered a total return of 345% whereas the index has rallied 60%. I became bearish on Permian Basin Royalty Trust in mid-2022, when I recommended selling the stock due to the breathless rally that the stock had enjoyed until that time and its resultant rich valuation from a long-term perspective. Since that article, the stock has dramatically underperformed the broad market, as it has offered a total return of -23% whereas the S&P 500 has surged 51%....

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