Here's Why Retaining NOV Stock Makes Sense in the Current Market

NOV Inc. NOV is a well-established provider of advanced equipment and technology for the oil, gas and renewable energy industries, with a history spanning over 160 years. The company plays an important role in global energy production, offering drilling systems, pressure control solutions and offshore wind technologies that support both traditional fossil fuel operations and the increasing transition toward renewable energy sources.Despite its strong market presence and continuous innovation, the stock has experienced fluctuations. While the company presents significant growth opportunities, challenges such as market volatility and competitive pressures may impact its valuation in the near term.This raises an important consideration for investors: Is it prudent to hold onto NOV stock at present? Let us examine the key factors driving NOV’s growth potential as well as the risks that investors should be aware of. What is Favoring the NOV Stock?Strong Backlog Growth and Resilient Book-to-Bill Ratio: Houston, TX-based oil and gas equipment and services company has maintained a book-to-bill ratio above 1 in 10 of the last 12 quarters, highlighting its ability to secure new orders at a faster pace than product deliveries. The company’s backlog has grown 22% over the past four years, providing strong visibility into future revenues. A rising backlog, particularly for offshore and production-related equipment, suggests continued demand for its offerings, positioning NOV for long-term stability despite market fluctuations.Strong Free Cash Flow Supporting Shareholder Returns: NOV generated $953 million in free cash flow in 2024, converting 86% of its EBITDA into cash.Image Source: NOV Inc.This strong cash flow performance allows the company to invest in growth initiatives while returning capital to shareholders through dividends and buybacks. NOV repurchased 14.2 million shares in 2024 and remains committed to returning at least 50% of its excess free cash flow annually. This financial discipline enhances investor confidence, positioning NOV as an attractive long-term investment.Expanding Market Share in High-Growth Segments: NOV is consistently gaining market share across its core product categories, with notable traction in drilling tools and offshore production technologies. Its friction reduction tools, torsional vibration mitigation technologies and downhole tools achieved an impressive 89% year-over-year growth. The company’s advanced drill bits and completions tools are becoming industry standards, helping customers improve operational efficiency and reduce downtime, further solidifying its competitive position.Offshore and International Growth Opportunities: Despite challenges in North America, NOV benefits from rising offshore investments, particularly in deepwater projects. The company secured major FPSO equipment contracts in Brazil and West Africa, supporting long-term revenue stability.Digital and Automation Innovations: NOV is advancing automation and digital solutions like the Max Edge platform, which integrates AI and real-time data processing. Its digital offerings saw strong adoption in 2024, positioning NOV for growth in high-tech energy services. Potential Risks for the NOV StockPotential Headwinds From Commodity Price Volatility: OPEC’s excess supply, strong shale efficiency gains and rising non-OPEC offshore production could pressure oil prices. Lower oil prices could lead to further cuts in exploration and production spending, negatively impacting NOV’s revenue outlook.Offshore Drilling Market Uncertainty Impacting Revenue Stability: Despite strong offshore investments, many drilling contractors are experiencing "white space" in their schedules, where rigs remain idle between contracts. This has led to lower aftermarket demand for NOV’s offshore drilling equipment and services. The company expects its rig aftermarket revenues to decline mid-to-upper single digits in 2025 due to reduced spare parts demand. If offshore drillers continue delaying new projects, NOV’s expected revenue growth from this segment could be significantly impacted.Weak Demand for Pressure Pumping and Stimulation Equipment: NOV’s Energy Equipment segment faces ongoing challenges due to reduced demand for pressure pumping and stimulation equipment in North America. As operators continue to optimize their existing fleets and delay equipment upgrades, sales of coiled tubing and hydraulic fracturing equipment have declined. This prolonged downturn in the pressure-pumping market is expected to weigh on NOV’s revenues and margins in 2025, offsetting gains from other business segments, particularly offshore equipment.NOV Underperforms Oil Sector and Peers:   NOV's share price has significantly underperformed both the Zacks Oil and Energy sector and the Mechanical and Equipment Oil and Gas sub-industry. Over the past six months, the stock has dropped 12.6%, while the sector and the sub-industry rose 0.7% and 6.9%, respectively. In comparison with its peers, including Kodiak Gas Services, Inc. KGS, Natural Gas Services Group NGS and USA Compression Partners USAC, NOV’s share price has underperformed. Six-Month Price Performance ComparisonImage Source: Zacks Investment Research Declining North America’s Drilling Activity: North America’s drilling activity declined 9% in 2024, impacting demand for NOV’s short-cycle products. With continued capital discipline among E&Ps, NOV’s revenues in this region may remain under pressure. Final Thoughts on NOV StockNOV's strong backlog growth and resilient book-to-bill ratio highlight its ability to secure new orders faster than product deliveries, providing strong revenue visibility and positioning it for long-term stability. Additionally, its robust free cash flow generation supports shareholder returns through dividends and buybacks, enhancing investor confidence.However, the company faces potential headwinds from commodity price volatility, which could impact oil prices and reduce exploration spending, negatively affecting revenues. Offshore drilling market uncertainty, weak demand for pressure pumping equipment and underperformance compared with its peers further pose risks, which may limit NOV’s revenue growth in certain segments.Given this mix of strengths and potential challenges, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report NOV Inc. (NOV): Free Stock Analysis Report Natural Gas Services Group, Inc. (NGS): Free Stock Analysis Report USA Compression Partners, LP (USAC): Free Stock Analysis Report Kodiak Gas Services, Inc. (KGS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks