RIG Stock: Low Valuation But High Risk?
Transocean (NYSE:RIG), a company specializing in offshore drilling, has significantly lagged behind the broader S&P 500 index over the last twelve months, posting a decline of 45% compared to the S&P 500's increase of 12%. The firm is currently facing financial setbacks, worsened by escalating cost inflation. Its overall financial condition seems fragile, and a slowdown in economic growth is anticipated to further diminish the demand for new oil and gas exploration initiatives. Despite appearing to have a very low valuation, there remain several major concerns about RIG stock.
In this analysis, we present a thorough comparison of Transocean's current valuation with its operational performance in recent years, along with an evaluation of its current and historical financial status. That said, if you are looking for upside with less volatility compared to individual stocks, the Trefis High Quality portfolio offers an alternative — it has outperformed the S&P 500 and generated returns exceeding 91% since its launch. Separately, see – QBTS Stock: What's Next For D-Wave After 1,350% Rally?
From a valuation standpoint, Transocean stock presently seems low-priced when evaluated against its sales or profit. The company's price-to-sales (P/S) ratio is at 0.7, considerably lower than the S&P 500's ratio of 3.0. Likewise, Transocean's price-to-free cash flow (P/FCF) ratio stands at 5.7, significantly beneath the S&P 500's 20.5.
Notwithstanding its low valuation, Transocean has shown substantial revenue growth in recent years. Over the past three years, its top-line revenue has grown at an average annual rate of 11.7%, outpacing the S&P 500's increase of 5.5%. More recently, Transocean's revenues surged by 24.4%, rising from $2.9 billion to $3.7 billion in the past twelve months, compared to the S&P 500's growth of 5.5%. In the most recent quarter, quarterly revenues experienced a significant increase of 18.7%, climbing to $906 million from $763 million a year earlier, greatly exceeding the S&P 500's improvement of 4.8%.
However, the profitability indicators of Transocean present a stark contrast to its revenue growth. The company's profit margins are weaker than those of most firms within the Trefis coverage universe. Over the last four quarters, Transocean reported an Operating Income of $431 million, leading to a modest Operating Margin of 11.7%, which is lower than the S&P 500's 13.2%. Additionally, its Operating Cash Flow (OCF) for the same period was $559 million, which translates to a moderate OCF Margin of 15.2% when compared with the S&P 500's 14.9%. The most alarming figure is Transocean's Net Income over the last four quarters, which showed a loss of $728 million, indicating a very poor Net Income Margin of -19.9% against the S&P 500's positive 11.6%.
The financial stability of Transocean appears quite weak. As of the latest quarter, the company's debt amounted to $6.6 billion, while its market capitalization stood at $2.7 billion (as of June 10, 2025). This results in a very poor Debt-to-Equity Ratio of 244%, significantly higher than the S&P 500's 19.9%, suggesting a heavily leveraged balance sheet. Furthermore, cash and cash equivalents make up only $263 million of Transocean's total assets of $19 billion, producing a poor Cash-to-Assets Ratio of 2.9%, which is markedly below the S&P 500's 13.8%.
Transocean's stock has also been less resilient compared to the S&P 500 index during recent market downturns. For instance, amidst the Inflation Shock of 2022, RIG stock tumbled 53.5% from its peak of $5.08 on July 2, 2021, to $2.36 on September 23, 2022, representing a more significant decline than the S&P 500's peak-to-trough decrease of 25.4%. Although the stock fully recovered to its pre-crisis peak by January 9, 2023, and later rose to $8.80 by July 31, 2023, it is currently trading around $3.10.
Similarly, during the COVID-19 Pandemic of 2020, RIG stock experienced a drastic drop of 90.6% from a high of $7.17 on January 6, 2020, to $0.67 on October 30, 2020, significantly exceeding the S&P 500's 33.9% decline. It wasn't until February 7, 2023, that the stock regained its pre-crisis peak.
Additionally, during the Global Financial Crisis of 2008, RIG stock fell sharply by 73.8% from $153.00 on May 20, 2008, to $40.04 on December 24, 2008, again a steeper drop compared to the S&P 500's decline of 56.8%. Notably, the stock has yet to return to its pre-crisis high from 2008.
In summary, Transocean's performance across these metrics suggests a generally weak outlook. Although its growth has been robust, it is overshadowed by significantly weak profitability and extremely poor financial stability. Its evident lack of resilience during downturns further amplifies the risk. Despite its current very low valuation, we perceive Transocean as a risky choice. From a long-term perspective, the industry-wide shift toward renewable energy and the increasing environmental regulations are likely to continue fueling investor skepticism about the long-term sustainability of fossil fuel-dependent companies like Transocean, thereby hindering its stock price growth.
Of course, our assessment could be wrong. A rebound in demand for oil and gas exploration projects could provide substantial benefits to RIG stock. The company is also actively working to streamline its fleet, which entails an expected $1.2 billion impairment charge in Q2 for the disposal of two rigs (GSF Development Driller I and Discoverer Luanda) along with the potential future disposal of two additional rigs (Development Driller III and Discoverer Inspiration). This strategic streamlining could enhance the company's operational efficiency moving forward.
Nevertheless, considering the ongoing poor profitability and weak balance sheet, the overall risk associated with Transocean seems high. We believe there are more attractive investment strategies available in the market. Consider Trefis High Quality (HQ) Portfolio which, consisting of 30 stocks, has consistently outperformed the S&P 500 over the past 4-year period. Why is that? As a collective, HQ Portfolio stocks have provided superior returns with reduced risk relative to the benchmark index; less of a roller-coaster experience, as demonstrated in HQ Portfolio performance metrics.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Verge
31 minutes ago
- The Verge
Tesla's first robotaxi rides will have a ‘safety monitor' in the passenger seat
Tesla has begun sending out invitations for its highly anticipated robotaxi service, but there's one significant caveat: it's installing a 'safety monitor' in the front passenger seat, as previously reported by Electrek. The invites, which were sent to Tesla influencers and investors, say the human monitor will 'accompany you on your trip' when rides begin on June 22nd — a move that's at odds with Elon Musk's promise of fully unsupervised rides. Details about Tesla's robotaxi service have been slim in the weeks leading up to its launch, but Musk said in January that the company would launch its 'unsupervised' robotaxi service with 'no one in the car' this summer. Musk expanded on this in an April earnings call, saying the 10 to 20 Model Y vehicles would be remotely operated in the event of an emergency. Tesla's invitation outlines some requirements for robotaxi rides, including that riders must request service between 6AM and 12AM within a geofenced area, 'excluding airports.' It adds that 'service may be limited or unavailable in inclement weather,' which is often a challenge for autonomous vehicles. Invitees can bring one additional guest 18 or older. Over the past couple of months, Tesla has faced pressure from the National Highway Traffic Safety Administration, which has asked the EV-maker for more information about 'the ability of Tesla's system to react appropriately to reduced roadway visibility conditions.' Texas lawmakers have requested that Tesla delay its robotaxi launch until a revision to the state's autonomous driving law takes effect in September. It will require robotaxi services to get authorization from the Department of Motor Vehicles before operating without a human driver.
Wall Street Journal
32 minutes ago
- Wall Street Journal
Fed's Waller Suggests Support for a July Cut
Federal Reserve governor Christopher Waller said the central bank could be positioned to cut interest rates at its next meeting in July, notwithstanding potential inflation pressures caused by new tariffs. In a Friday morning interview with CNBC, Waller said the Fed should 'look through' one-time price increases from tariffs and instead respond to the underlying trend in inflation, which has been cooling.
Forbes
32 minutes ago
- Forbes
The High Price Of Leadership (And Ways To Bring It Down)
Joe Altieri is the CIO at RiteScreen and the Inventor of FlexScreen, the cutting-edge innovation revolutionizing the window industry. Leadership isn't glamorous. Motivational speeches, grateful teams and energizing collaborations are a part of it— sometimes. But more often than not, leadership is like that Rolex watch—so appealing but so incredibly expensive. University of Georgia head football coach Kirby Smart shared three very wise and insightful points about leadership that I think seasoned leaders don't talk about enough and young or aspiring leaders ignore to their peril. Here's how I interpreted them: When you're in a leadership position, you're entrusted with making decisions that serve the greater good—even if that means hurting someone you genuinely like or care about. Leaders who take the easy path and let a bad situation continue because they don't want to make any waves can expect an eventual tsunami of resentment. You can get away with tipping the scales for a difficult or incompetent (but very loyal) person a few times, but it won't take long for the grumbling to start among the faithful, hardworking employees who see the injustice with striking clarity. Action Step: Stay steadfast in your decisions. Do what you can to lessen the blow for the people who will be negatively affected, but don't neglect or put off doing the right thing. The short-term discomfort is far better than the likely long-term pain of shirking your leadership responsibilities. We all want to be effective AND liked, but the reality is that someone will always be unhappy or disapprove of your decision or direction. That is unavoidable. The goal must be to base our decisions on effectiveness—not popularity. And that's harder than it seems. When I was building a company, I made choices that prioritized innovation and long-term growth. Sometimes, that meant saying "no" to things others thought would be beneficial or necessary. Some people didn't like it. Some still don't. But leadership isn't a popularity contest, and the last thing you want is a room full of "yes" people. If everyone always agrees with you, it's time to check yourself. That red flag almost always means one of two things: They're afraid to voice an opinion or have relegated themselves to the reality that it wouldn't matter anyway. In either case, the leader is missing the mark entirely. So what can you do? Surround yourself with people who understand your heart, even if they don't always agree with your decisions. Communicate clearly and often. Allow yourself to be vulnerable. People may not like your choices, but they'll most likely respect you for being consistent, honest and mission-driven. The sooner you accept that you will be misunderstood—a lot—the better your leadership journey will be. Every leader will find themselves in the hot seat regularly. The first instinct is usually to defend and protect yourself, but that's a losing long-term strategy. The people who aren't you have no idea what it actually takes to be you, and no amount of explaining will help. Of course, if you can set the record straight, do it. But don't obsess over it. Unless the misunderstanding threatens to lead to long-term team or corporate damage, let your trusted inner circle handle it while you stay focused on the main objectives. The vast majority of the dust-ups will die down quickly with very little consequence, and if you have surrounded yourself with the right people, they will let you know if your intervention is necessary. What's the action step here? Rise above the fray. Resist the urge to strike back, keep moving forward with the company agenda and remember that it is always wise to overcommunicate, especially when tensions run high. Success, progress and wins tend to naturally quiet the discord. The common saying about war and sports perfectly applies to business, too; the best defense is a good offense. Leadership costs something. It costs comfort, ease, and sometimes relationships. But remember that you're not just building "something." You're investing in and building people. You're shaping culture and moving things forward. Sure, the weight of leadership can feel like a massive burden at times, but that's when perspective is critical. So, think of it like this. We get to do something that can be life-changing for so many. We get to empower and lift others up and lead people toward their full potential. We get to make a difference and, hopefully, make the world a better place. And that, my fellow leaders, is a rare privilege that is definitely worth the cost. Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
