While fracking is well established in America, it’s still in the early stages overseas.

Most foreign energy producers are more focused on proving they can frack, rather than investing in better technology.

After seeing growth over a decade ago, North American fracking has stagnated. The number of wells in the U.S. has held steady at roughly 12,000 over the past few years.

This means It’s getting harder to drive growth on American oil soil. But global fracking—where technology has yet to advance to comparable levels—is changing that story.

That’s where Cactus (WHD) comes in. It makes wellheads—the pieces that sit on top of a well. These wellheads are some of the best in the business, and Cactus has leveraged them to deliver strong returns over the past few years.

However, investors don’t seem to be convinced that it can sustain and grow those returns.

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However, investors don’t seem to be convinced that it can sustain and grow those returns.

A forklift at a California port slides under a white, bulging bag the size of a small car.

The crew lifts it, swings it over steel, and lowers it into a container like it’s loading grain.

The bag is filled to the brim with sand. And that sand is headed for the red dirt of the Beetaloo Basin in Australia,. a shale-rock gas reservoir roughly the size of Belgium.

Liberty Energy (LBRT) calls these bags “super sacks.” In late 2024, it shipped about 45 million pounds of frack sand across the Pacific to Australia.

Traditional oil drilling doesn’t work on this kind of basin. Only hydraulic fracturing—injecting a mix of fluids and sand to free trapped oil—is strong enough.

Also called “fracking,” the process is an American invention. And increasingly, it’s becoming a U.S. export.

While fracking is well established in America, it’s still in the early stages overseas.

Most foreign energy producers are more focused on proving they can frack, rather than investing in better technology.

That’s why energy businesses are importing sand from 10,000 miles away. Even if it’s more expensive in the short term, the local industry isn’t ready to invest in a local supply.

At the same time, North American fracking has stagnated. The number of fracking wells in the U.S. has held steady around 12,000 for the past three years. Down from an all-time high of 19,000 in 2014.

This creates a problem for domestic suppliers. It’s getting harder to drive growth on American oil soil.

Global fracking changes the story. Bahrain has brought in Texas-based oil and gas producer EOG Resources (EOG) to drill early-stage unconventional wells. Algeria is running pilots with international oil services companies Halliburton (HAL) and SLB (SLB).

It starts with pilot programs. But if the international market has the same success with fracking as North America, which currently holds 83% of global market share, there are still several years of boom to look forward to.

And that’s where Cactus (WHD) comes in.

Cactus makes wellheads—the pieces that sit on top of a well. They sit at the surface as the pressure boundary between the well and everything happening above ground.

These wellheads are some of the best in the business. Cactus’ products are considered the “gold standard.”

There’s a lot of technology that goes into wellheads. So for new countries trying to grow their fracking footprints, it’s better to buy from the leader than spend years developing their own expensive tools.

Cactus already has a small presence in areas like Australia and the Middle East. So it’s in a prime position to grow internationally.

However, investors seem to be missing out on the opportunity Cactus provides.

We can see this through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

Cactus posted returns above 20% from 2022 to 2024. 

Last year, returns fell to 17%, below the 20%+ benchmark Cactus achieved from 2022 to 2024.

Now, investors expect its Uniform return on assets (“ROA”) to fall further to 12% by 2030. 

In short, investors don’t expect this international fracking boom to boost Cactus’ profitability. They also expect the company to do worse from 2026 onwards.

These expectations set up Cactus for outperformance.

This domestic supplier is becoming a global one. Investors have spent years treating U.S. fracking as a late-cycle story in which growth is only getting harder. Fracking-related stocks like Cactus have flown under the radar.

But these companies are finally getting a lifeline. Cactus sits in a sweet spot for global fracking demand. If international shale projects push toward full production, operators will lean on U.S. expertise to get there faster.

And that’s exactly what could propel Cactus’ growth moving forward.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research