Oil States International, Inc. (OIS): Compelling yet Underappreciated Opportunity?

Yahoo

07-05-2025

We came across a bullish thesis on Oil States International, Inc. (OIS) on Substack by Unemployed Value Degen. In this article, we will summarize the bulls' thesis on OIS. Oil States International, Inc. (OIS)'s share was trading at $3.61 as of April 28th.
An oil and gas engineer looking at a production tree, inspecting its pressure control equipment.
Oil States International (OIS) represents a compelling yet underappreciated opportunity in the oilfield services sector, particularly at a time when investor sentiment toward energy equities is wavering. With oil prices dipping below $65 per barrel despite a weakening U.S. dollar, the macro backdrop feels counterintuitive — cheaper oil in a cheaper dollar. However, such dislocations often present attractive entry points. The cure for low prices is low prices, and as production naturally declines (especially in shale, which sees annual depletion rates north of 20%), supply eventually constricts, creating upward pressure on prices. Matador Resources' recent rig count reduction, enabled by flexible service contracts, signals that the pullback is already in motion. Meanwhile, the International Energy Agency, even with a track record of underestimating demand, still expects oil consumption to increase in 2025. Against this cyclical setup, oilfield services are positioned to benefit as supply and demand eventually rebalance.
Rather than betting on fast-depleting shale producers with volatile cash flows, OIS offers a more durable industrial angle. Though OIS may initially appear unattractive due to GAAP net losses driven by non-cash charges such as asset impairments and goodwill writedowns, a closer look reveals solid cash generation. The company has posted positive operating cash flow in each of the last three years—$32 million in 2022, $56 million in 2023, and $45 million in 2024—despite the challenging operating environment. This cash has funded debt reduction and share repurchases, with roughly $18 million used to buy back stock and another $10 million directed at lowering debt. With a market cap around $216 million, OIS isn't gushing cash, but it is self-funding and returning capital to shareholders, a rare feat for a small-cap industrial in a cyclical trough.
OIS is a hybrid operator with exposure to both offshore and onshore markets. Over half of its revenue comes from offshore services, including engineered components such as flexible bearings, connection systems, and subsea pipeline parts. The offshore business, still recovering from the 2014 oil price collapse, has the potential to grow significantly if major upstream investment resumes. While supermajors have remained conservative on offshore capital expenditures, their need for heavier crude and the relatively low marginal cost (often sub-$55 per barrel) means that when prices stabilize, investment will return. Onshore, OIS serves the shale patch with specialized equipment like crown valves, downhole gas separators, and perforating systems. As shale development matures, operators are increasing their use of complex engineered products. The number of perforating charges and guns per well has more than tripled over the past decade, even as rig counts remain subdued, creating demand tailwinds for OIS's razor-blade business model.