The Truth about TPL, Horizon, and the Asset/Liability Mismatch – Gotham City Research

Gotham City Research’s Opinions

• TPL stock is up over 4x since 2019 due to forced, price insensitive buyers and misplaced confidence in Horizon.
• TPL business is inflecting into a lower quality, capital intensive business with less growth and lower ROICs.
• We believe shares will approach $361-$440 per share, implying 53%-61% downside vs current price.

Summary Of The Bases Of Opinions

• TPL stock was up ~100x from 2002-2019, tracking EPS growth, which also grew ~100x. From 2019-2024, however, EPS only grew 1.4x, yet the stock, 4.2x.
• TPL was an ‘index ineligible trust’. Horizon led a campaign to change TPL’s corporate form and succeeded. TPL, thus, became an index eligible corp as of 2021.
• Vanguard, BlackRock, and State Street - Price insensitive, forced buyers of the stock – increased their combined ownership of TPL stock from <1% in 2020 to 24%, 2025.
• Form 4 filings give the appearance that Horizon Kinetics and its CIO Murray Stahl – a board member of TPL – are steady and consistent buyers of TPL stock.
• Horizon Kinetics funds have actually been massive sellers of TPL stock since 2019. We calculate that their TPL position has declined by -34% since the end of 2018.
• Horizon’s TPL position represents ~40% of its equity, and over 30x TPL ADV. We believe Horizon is smart and therefore will continue to sell TPL stock, for risk management purposes.
• TPL claims to be a ‘growth-oriented enterprise’ yet its employee count has barely grown since 2020.
• A former TPL employee – in charge of data center business development – believes data centers will be worth at most a few million dollars per year in land lease.
• TPL spent $471 million on acquiring assets in 2024.
• TPL spent more in 2024 on acquisitions, than they did in the previous 22 years (2002-2023) - combined.
• In 2024, TPL purchased oil and gas interests for $34,107 per NRA. Historically their purchases averaged $11,000/NRA.
• TPL’s has purchased and sold land for $2,569-$2,855 per acre (on a weighted avg basis) over the last 8 years, yet TPL’s market cap per acre is over $25,000 per acre.
• TPL paid for stock promotion ads in 2024. This is not behavior we expect to see in a S&P 500 constituent.
• Karl Kurz is a member of the TPL Board, since April 15, 2022. Kurz’s TPL bio fails to mention that he was on BoD of Royal Helium – a Canadian penny stock promote until May.

Introduction

Gotham City Research first started looking at Texas Pacific Land (“TPL”) along with Landbridge (“LB”) last year. On one hand, TPL looks like an exceptionally good company. The stock is up 400x since September 30th 2002 13F filing, when Horizon Kinetics became a steady 13F owner of TPL:

With its inclusion late last year in the S&P 500, it would seem that its brightest days remain ahead (new additions to S&P 500 have historically tended to exhibit long term price upward momentum). Yet upon digging further, we found the truth to be more complicated:

• TPL stock price AND EPS both grew roughly 100x from 2002-2019. Thus, from 2002-2019, TPL stock price tracked fundamentals.
• However, from 2019-2024, TPL stock price grew 4.2x yet EPS only grew 1.4x. The stock had gotten way ahead of its fundamentals.

Upon looking into what caused this divergence between the stock price and fundamentals, we came to believe that two shaky foundations explained TPL’s excess stock appreciation:

1. TPL stock had been ineligible for inclusion into a bunch of indices and ETFs as a trust; Once eligible as a Delaware corp in 2021, these passive funds increased their stake from <1% in 2020 to over 24% by 2024.
2. Horizon, long-time investor who had been consistently in the stock since 2002, appeared to be steady buyers of TPL stock from 2019-2024, at least according to SEC form 4s and BBG terminals. As a matter of fact, Horizon has actually been big sellers – reducing their position every year, since the end of 20184:

Gotham City Research believes that Horizon is correct: the TPL stock is a sell, and like Horizon we too have been sellers of TPL stock. Now that the forced buying has dissipated, coupled with investors realizing that Horizon are actually sellers – not buyers - shares face the risk of at least a 53-61% decline from here as the stock converges to fundament reality.

TPL’s secret sauce: Price insensitive buyers until 2024

Texas Pacific Land appears to be a great company

On the one hand, Texas Pacific Land (“TPL”) appears to be a great company. Its stock price is up 4x since pre-covid, and TPL was added late last year to the S&P 500:

We believe the stock has been propped up by two misconceptions

From 2002-2019, TPL’s EPS and stock price both grew ~100x. From 2019-2014, TPL stock is up 4.2x, from $260 to $1,040 per share. Yet, EPS is only up 1.5x:

We believe the following explain this divergence between the fundamentals and the stock price:

• Price insensitive, forced buyers started buying TPL stock in 2021, as TPL’s conversion from a Trust into a Delaware corp, made the stock eligible for indices it previously was ineligible for. These price insensitive buyers have expanded their stake in TPL from <1% of shares outstanding in 2021 to nearly 24% of shares outstanding, as of the end of 2024.
• Active investors have been buying or holding TPL shares on the belief that Horizon Kinetics has been a steady and consistent buyer of the stock since 2019.

Why we believe the party is over as of the end of 2024: the tailwinds are now headwinds

• In theory, mispricing between fundamentals and stock price can persist for long periods of time. In the case of TPL, however, we believe the drivers of this mispricing are over, and that the stock faces downside risk for the following reasons: The price insensitive forced buyers began buying in 2021. The entry into S&P 500 marks the climactic finale to that. What was previously a tailwind, is now a headwind.
• Horizon Kinetics are actually sellers of the stock and have been sellers of the stock. They have reasons to continue selling. As more market participants digest the reality of Horizon’s actions and incentives, confidence will erode, we believe shares will face downside pressure.

In this section we focus on how forced, price insensitive buyers have been driving up TPL stock since 2021 and why that has ended as of 2024. By ‘forced, price insensitive buyers’ we mean Funds that are required to, by mandate, be invested. Not necessarily because they want to, but because they have to. These funds buy whether TPL is cheap or expensive, a good investment or poor investment.

Read the full report here by Gotham City Research