This is a free investment case from Compounding Research. The investment research publication for individual investors.
What if you could buy $1 of assets for just $0.36, but it’s in a volatile oil cycle, would you take the bet?1
Then you want to hear about Valaris, one of the world’s largest fleets of offshore oil drillers.
Source: Valaris (jackup oil drilling rig)
Stock deep dive: Valaris
Valaris may not be a forever hold or compounder stock, but it’s a perfect example of an opportunistic value investment.
The stock is estimated to grow from $45 to its fair value of $159 in 1-2 years because of undervalued assets, rising oil demand, and guaranteed revenues.
That value investing opportunity also caught the eyes of billionaire Mohnish Pabrai, who bought $56 million of shares in Q1 20252.
And Mohnish only makes a handful of bets per year, usually in companies trading well below their asset value.
So, what does Valaris do, and why could the stock double or triple in 1-2 years?
Let’s dive into this memo that will save you 15+ hours on researching the news, investor reports, and analyst ratings. So you can judge if it’s a great investment for you.
Source: Tikr (P/E Valuation Model)
What does Valaris do?
Yes, Valaris owns one of the largest fleets of offshore oil drilling rigs in the world. But it doesn’t extract or sell oil itself.
Instead, it rents out its 51 drilling rigs to energy giants like Shell, who pay up to $400,000 a day to drill deep beneath the ocean floor in search of oil and gas reserves.
These drilling rigs include ultra-deepwater drillships, semisubmersibles, and jackups that operate in everything from shallow waters to the deepest parts of the ocean.
Source: Drill Techniques (different types of oil drilling rigs)
Once the oil is found, it’s pumped up and refined into fuel for cars, heating for homes, and everyday products like shampoo bottles.
Valaris has been renting out its drilling rigs since 1975. After going bankrupt in 2020 due to the oil price collapse, Valaris restructured with less debt and a leaner cost base. In 2024, it generated:
$2.36 billion in revenue
$253 million in net income
But also -$100 million in Free Cash Flow (due to reinvestment in drilling rig upgrades to prepare them for future customer contracts)
Today’s “new” Valaris has less debt, so it can focus on growth and survive tough times.
Source: Compounding Research (based on data in the Valaris Annual Report 2024)
Why could Valaris grow?
To know what Valaris could be worth, we need to understand what will drive its profits.
Let’s have a look at why the stock could appreciate in the next 1–3 years. It won’t compound forever, but enough to deliver strong upside for patient investors.
Here are 7 key factors that could increase its profits, driving the stock higher: