Stairway to Heaven or Highway to Hell? ProFrac Holdings $ACDC

The market has been very unusual this past quarter. Realized volatility is outpacing anticipated volatility by so much that the buyers of options are making more money than the sellers of options. For the entire history of the options market, this has never happened before. On average, options are a transfer of wealth from the buyer to the seller, but last quarter this was reversed. That doesn’t mean selling an option can’t be right for you, if a stock has passed your price target, and you sell a call on it as a part of your exit strategy, then you are better off. But for the first time, on average, the buyer outperforms the seller.

This enormous increase in realized volatility in excess of the predicted volatility is showing up in stock price moves of extreme proportions. Companies that announce mediocre earnings, or even good earnings but temporarily bad guidance for the next six months, are selling off by 25% to 40%, often on temporary problems. This is the most extreme dip-buyer’s market that I have ever seen, or quantifiably that anyone has ever seen.

It has never been more important to know what you own, and to be willing to grab the bull by the horns with both hands when a buying opportunity happens.

One company that I own, and I first wrote about in June of 2024 is ProFrac Holdings (ACDC). The stock sold off 42% today on the announcement of a $75 million equity raise. The original writeup can be found here:

ProFrac Holdings is a frack services rollup, with founders who have been aggressively acquiring companies in order to create a vertically-integrated one-stop-frack-shop that services all seven shale basins. As with many companies that I write about, value just means cyclical. Shale oil is in the trough of the cycle, times are bad right now. But times will not always be bad, oil is not obsolete, nor will it be for at least thirty years (probably more like a hundred years, but hey, being conservative). Management estimates that at the peak of the cycle, each vertically integrated frack fleet will generate $50 million of annual EBITDA. We don’t know the exact fleet count of ACDC, it was 45 at one point but they have been retiring old diesel fleets. Valuing ACDC based on trailing twelve months $450 million adjusted EBITDA would result in a different valuation than the $2 to $3 billion EBITDA that management believes their platform can generate when the graph below starts to turn up.

The ACDC rollup is going far beyond just frack fleets, ACDC has acquired eight sand mines, which allows them to benefit from selling the razorblades and not just the razors. As the lateral length of horizontal wells has increased, the frack fleet count has fallen, but the amount of consumables has risen as was discussed in the writeups on Forum Energy Technologies (FET) and Oil States International (OIS). ACDC has been preparing this sand subsidiary, Alpine Silica, for spinoff to unlock value, but market prices haven’t been favorable during this down part of the cycle for the spinoff.

ACDC also has a manufacturing arm to create their own frack fleets. About half of their manufacturing is for internal use, but the other half is about $100 million of revenue in the last twelve months manufacturing frack equipment for their competitors. The in-house manufacturing capability will allow ACDC to ramp up to meet demand faster than many of their competitors. I do not believe that this subsidiary is meant for an eventual spinoff in the same way Alpine Silica is, but management hasn’t detailed what the founders’ exit strategy will eventually be.

Another aspect of this rollup, which is going not just vertical but also horizontal, is power generation. Many oil services companies are throwing money at power generation. With the move away from diesel fleets to electric, and with the ban on flaring, there is an impetus to separate, dehydrate, and treat the gas onsite so that it can be burned to operate the frack equipment. ACDC started down this power generation path, but has since contributed their power gen equipment to Flotek (FTK), as well as taking a 60% equity stake in the company.

Just on the subject of sum of the parts valuation, 60% of Flotek is valued at $226 million. If I subtract that from ACDC’s market cap at the end of trading yesterday of $581 million, the core ACDC assets are currently being valued by the market at $355 million. This is unreasonably cheap for one of the top three frack services companies which did $3 billion of revenue in the twelve months spanning half of 2022 and 2023. ProFrac Holdings is either a zero or a 10x from the market price at the close on August 13th 2025.

Will ACDC go to zero? I don’t believe so. The CEO and the President, Matt and Lad Wilks are two cousins following in their fathers’ footsteps. The prior generation, Dan and Farris Wilks founded a frack services company, Frac Tech, and sold it in 2011 for $3.5 billion. If this bear market in frack services were to go on so long that ACDC were to be near bankruptcy, Dan and Farris would likely participate in the equity raise to bail it out. They know that this business is cyclical, and surviving to the other side of the cycle is not throwing good money after bad.

The bigger risk would be that they choose to take ACDC private, as they already own 88% of it. The reason to stay public is that it facilitates raising debt, it facilitates mergers & acquisitions, it facilitates the eventual spinoff of Alpine Silica, and it allows potentially for partial slow exits over time at higher average valuations than a one-off sale. But if the market punishes ACDC’s stock price forever, the Wilks might lose patience with being public. This is the largest risk of owning ACDC in my opinion, and the recent equity raise, by increasing the public float, will help mitigate this risk somewhat, (assuming the Wilks family doesn’t participate, which they have done in past equity raises).

Why did ACDC raise $75 million yesterday? The liquidity situation is getting a bit tight, and while most debt matures in 2029, there is $131 million that matures at the end of 2025. It is also possible they refinance this debt, and the $75 million facilitates yet another acquisition. While the net income situation looks bleak during this fracking downturn, free cash flow has held up remarkably well due to the large amounts of depreciation. If you prefer longer lived assets, drilling rigs are a more stable business, but if you want maximum torque, levered frack fleets is the place to be.

Operating cash flows have been over $100 million per quarter on average, but as the rollup continues, cash keeps going out the door for more acquisitions. Capex has averaged $50 million per quarter, but acquisitions have averaged $80 million per quarter over the last six quarters. From a bird’s eye view, the free cash flow situation looks negative, but even in this trough of fracking, ACDC would be cash flow positive except that the Wilks family is keeping their foot on the acquisition accelerator.

There isn’t much else to say, this is a cyclical business, and this new record low stock price might just mark the absolute bottom of this cycle. I bought heavily yesterday, averaging down significantly from the shares that I bought when the price was closer to $7.50 instead of $3.63. Dilution is never pleasant, but the acquisitions over the last 18 months of Advanced Simulation Technologies and 60% of Flotek have outweighed the dilution, and my shares of ACDC represent a bigger company than it did when I first bought it.

Putting a price target on ACDC is not easy, the bear market could continue longer, and might even result in some more dilution between now and then. We don’t know the precise fleet count, but when demand returns, ACDC will likely plow their profits into building out more frack fleets from their manufacturing arm. Flotek has a $378 million market capitalization today, but with them pursuing power generation for data centers, could receive a benefit from the AI revolution. Alpine Silica would be worth about $80 million at current depressed comps, but would probably be worth closer to $300 million within a couple of years, assuming ACDC wasn’t distressed and had to firesale something. The manufacturing arm is probably worth between $200 million and $400 million, industrials fetch a pretty high multiple. ACDC has a software arm which has been optimizing equipment management, it is unclear if this software is meant to be sold to their competitors or not. I can’t really narrow down the cyclical peak enterprise value of ACDC more than somewhere between $5 billion and $15 billion; the larger number representing a price to earnings ratio of 10x, and net income of $1.5 billion based on 30 frack fleets each generating $50 million to the bottom line.

So if ACDC survives to the other side of the shale cycle, and doesn’t go bankrupt or private, it is likely at 10x to 30x from the price at yesterday’s close.

ProFrac Holdings (ACDC) $3.63: Between $30 and $90 at the peak of the shale boom.