We came across a bullish thesis on Forum Energy Technologies, Inc. (FET) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on FET. Forum Energy Technologies, Inc. (FET)’s share was trading at $19.09 as of Jan 17th. FET’s forward P/E was 13.53 according to Yahoo Finance.
A drilling rig illuminated against the night sky, providing energy for generations.
Forum Energy Technologies (FET) presents a compelling investment opportunity as a capital-light player in the oil and gas sector, with its consumable hardware business model benefiting from increasing natural gas export terminals and rising electricity demand. FET operates like a “Dollar Shave Club” for the shale basin, delivering high-margin, consumable products for drilling and fracking activities. Its exposure to offshore drilling and niche markets, such as the Canadian tar sands through the recent Variperm acquisition, strengthens its market position and enhances cash flow resilience. Despite competition, FET is one of only three global suppliers in several product categories, enabling it to maintain pricing power and defend its market share through innovation and acquisitions.
Following financial difficulties from over-leverage during the 2014 oil downturn and the COVID-19 crisis, FET has emerged as a leaner entity, retaining its high-margin businesses and restructuring its balance sheet. The company’s sale-leaseback initiative underscores its shift toward a capital-light model, supporting free cash flow generation. Management projects $50–$60 million in free cash flow for 2025, equating to a 21–25% free cash flow yield at its current $234 million market capitalization. With guidance for 15% annual revenue growth and potential margin expansion, FET could deliver a 28–33% free cash flow yield by 2026, even without relying on a rebound in drilling activity.
FET’s growth strategy aligns with the industry trend toward expanded lateral drilling, where consumable usage outpaces rig count declines. The company’s focus on niche markets and technological differentiation creates barriers to entry and enhances profitability. Leadership, including CEO Neal Lux and Chairman Chris Gout, brings experience and a history of innovation, though insider ownership remains relatively low at 3%. The team’s commitment to acquisitions reflects confidence in the ongoing drilling cycle, though this strategy carries risks in a potential downturn.
Valuation metrics underscore FET’s deep undervaluation, with current price-to-sales and price-to-book ratios of 0.29x and 0.53x, respectively. Historically, these ratios reached 2.0x when market confidence was higher. Assuming FET achieves $1 billion in revenue by 2026 and trades at a 1.0x–1.5x price-to-sales multiple, the stock could deliver a 4x–6x return. While near-term volatility may present buying opportunities, FET remains an attractive play on the secular trends in natural gas and oil drilling, offering substantial upside potential despite its recent price rally.
Forum Energy Technologies, Inc. (FET) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held FET at the end of the third quarter which was 7 in the previous quarter. While we acknowledge the risk and potential of FET as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FET but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.