Permian Basin Royalty Trust (PBT) recently reported second quarter and first half 2026 results, with higher revenue and net income than a year earlier, drawing fresh attention from income focused energy investors.

At a share price of US$32.69, Permian Basin Royalty Trust has seen strong momentum, with an 85.84% year to date share price return and a very large 5 year total shareholder return of 652.56%. The 1 year total shareholder return of 122.02% suggests recent earnings strength has been rewarded, even as the 1 day share price return declined 2.42%.

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After Permian Basin Royalty Trust’s sharp run and recent earnings update, the balance between income potential and downside risk looks less straightforward. Do the current cash flows and royalty assets still justify paying this much for exposure?

Preferred P/E of 94x for Permian Basin Royalty Trust: Is it justified?

Permian Basin Royalty Trust is trading at a P/E of 94x, which is well above both the US Oil and Gas industry average and its direct peer group.

The P/E ratio compares the current share price to the company’s earnings per share. For a royalty trust like Permian Basin Royalty Trust that distributes income from underlying oil and gas interests, a very high P/E usually reflects strong recent payouts, expectations of sustained cash generation, or both.

Here, the picture is mixed. Earnings declined 1.7% over the past year and have declined 2.6% per year over the past 5 years, even though net profit margins of 91.6% are higher than last year’s 89.5% and earnings quality is assessed as high. The stock’s strong 1 year total return, which exceeded both the US Oil and Gas industry and the broader US market, suggests investors have been willing to pay a premium for this income stream despite the weaker earnings trend.

The gap to peers is clear. The US Oil and Gas industry trades at an average P/E of 12.6x and the peer average is 15.6x, compared with Permian Basin Royalty Trust at 94x. That is a very large premium that implies investors are pricing in a very favorable view of future income and cash flows relative to the sector.

Result: Price-to-Earnings of 94x (OVERVALUED)

However, investors in Permian Basin Royalty Trust still face risks if energy prices weaken or if production from its underlying Texas royalty interests fails to meet expectations.

Another View on Permian Basin Royalty Trust’s Valuation

There is also a discounted cash flow view for Permian Basin Royalty Trust. Our DCF model estimates a future cash flow value of $9.46 per unit, compared with the recent $32.69 price. That gap suggests the units screen as expensive on this measure. Which signal do you trust more?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Permian Basin Royalty Trust for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 52 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.