Sable Offshore (SOC) has resumed oil transportation through the Santa Ynez Pipeline System after an administration directive to restart offshore drilling, putting the company on the cusp of renewed sales activity and subjecting it to closer investor scrutiny.

The restart of Santa Ynez has coincided with sharp share price momentum, with a 30-day share price return of 102.08% and a 90-day share price return of 116.30%, even though the 1-year total shareholder return is a 28.79% decline and the 3-year total shareholder return is 82.13%.

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With Sable Offshore now moving oil again, a US$2.64b market value, and a last close of US$18.45 sitting well below an average analyst target of US$28.33, is this a mispriced restart story or is the market already banking on future growth?

Preferred Price-to-Book of 5.1x: Is it justified?

On current numbers, Sable Offshore trades on a P/B of 5.1x, compared with around 1.7x for the wider US oil and gas group and 1.4x for its closer peers. That is a clear valuation premium even though the business is still loss making and has reported a net loss of $410.162m with less than $1m in revenue.

The P/B multiple compares the share price to the book value of equity on the balance sheet and is often used for asset heavy sectors like oil and gas, where tangible infrastructure and reserves matter. A higher P/B can reflect expectations that those assets will generate stronger future returns, but it can also mean investors are paying up well ahead of any proven profitability.

Here, the contrast is stark. Sable Offshore sits at roughly 3x the industry average P/B and more than 3x the peer average, even though it is currently unprofitable with a negative return on equity of 76.77%. Analysts are forecasting strong revenue and earnings growth, including expectations that the company becomes profitable within the next 3 years. This may help explain why the market is willing to ascribe such a rich multiple to the equity today.

Result: Price-to-book of 5.1x (OVERVALUED)

However, the story still carries clear risks, including ongoing losses of US$410.162m on minimal revenue and the possibility that pipeline or offshore operations will face further setbacks.

Next Steps

Given the mix of optimism around the restart and concern about ongoing losses, it makes sense to check the data yourself and move quickly to form an informed view by weighing up the 2 key rewards and 3 important warning signs.

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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.