Should You Sell or Hold NOV Stock After Weak Q4 Performance?

NOV Inc. NOV has faced significant challenges recently, with its fourth-quarter performance falling short of expectations. The company posted adjusted earnings of only 2 cents per share, well below the Zacks Consensus Estimate of 25 cents, and a steep decline from 41 cents in the year-ago quarter’s level. This poor performance was largely caused by underperformance in the Energy Products and Services segment, raising concerns about its ongoing operational struggles.

Despite these challenges, NOV has seen its stock price increase 35.7% over the last three months, outperforming both the Mechanical and Equipment Oil and Gas sub-industry, which grew 31.4%, and the broader Oil and Energy sector, which rose 19.9%. However, this short-term rally in the stock price may be masking deeper issues within the company. Investors should be cautious as the company's financial performance may not fully reflect the recent market optimism.

The company's weak fundamentals, particularly in the face of a strong market rally, suggest that it may be facing significant challenges moving forward. Let’s take a closer look at the specific issues that are weighing on the company’s performance.

Difficulties Faced by NOV in the Market

Decline in Global Drilling Activity: NOV's performance is being negatively impacted by a broad market downturn. The company reported that its fourth-quarter revenue decrease came against a global drilling-activity decline of 6%. NOV’s monument expects global industry spend and drilling activity to decline slightly again in 2026.

Disciplined M&A Creates Growth Vacuum: NOV’s management stated they did not complete a single acquisition in 2025 and have raised the bar significantly for future deals. While fiscally prudent, this disciplined approach, combined with a cautious market, suggests a lack of immediate external growth catalysts to boost revenues or expand market share.

Deteriorating Offshore Wind Outlook: The company noted that the outlook for offshore wind has "deteriorated with the latest estimate for turbine capacity additions through 2030 down over 35% since this time last year." This weakness is impacting demand for Wind Turbine Installation Vessels, a key market for their Marine and Construction business.

Slowing Order Intake and Backlog: While the full-year book-to-bill was 91%, the fourth-quarter book-to-bill for capital equipment was only 73% compared with orders shipped from backlog. Furthermore, total backlog at year-end decreased $93 million from 2024, suggesting a potential slowdown in future revenues from long-cycle projects.

Growing Headwinds From Tariffs: Tariff expense increased to $25 million in the fourth quarter, up $8 million from the prior quarter. Management warned of "sizable increases for items like Tungsten carbide" and expects tariff expense to slightly increase again in first-quarter 2026, adding persistent cost pressure that is difficult to fully pass on to customers.

Bearish Near-Term Market Outlook: NOV’s management explicitly stated that for the first quarter of 2026, they expect consolidated revenues to decline 1% to 3% year over year. The company also forecasts full-year 2026 EBITDA to be "in-line to slightly lower" than 2025 levels, signaling a lack of confidence in a near-term recovery.

Decline in High-Margin Aftermarket Sales: NOV’s Energy Equipment segment revenues grew, but this was largely due to capital equipment sales. Aftermarket parts and services revenues, which typically carry higher margins, declined 12% year over year. This shift in sales mix toward lower-margin new equipment is a negative trend for overall profitability.

Weak Short-Cycle Business Performance: NOV’s Energy Products and Services segment, which is more exposed to North America, saw revenue decline of 7% year over year in the fourth quarter. Profitability in this segment was further hurt by increased tariffs and inflationary pressures, highlighting its vulnerability to immediate market downturns and cost increases.

Final Words: Avoid NOV Stock

This Zacks Rank #4 (Sell) company is facing multiple headwinds, including a decline in global drilling activity, weaker offshore wind prospects and a slowdown in order intake. Rising tariffs and shrinking high-margin aftermarket sales are adding pressure on profitability, while a cautious outlook for 2026 suggests limited near-term recovery. The lack of external growth catalysts and ongoing market challenges points to a fragile financial position. Without clearer earnings improvement and steadier operations, investors might consider alternative opportunities within the oil and gas space.

Key Picks

Investors interested in the energy sector might look at some better-ranked stocks like TechnipFMC FTI, USA Compression Partners USAC, each sporting a Zacks Rank #1 (Strong Buy) and Oceaneering International OII, holding a Zacks Rank #2 (Buy) at present. You can seethe complete list of today’s Zacks #1 Rank stocks here.

TechnipFMC is valued at $25.4 billion. It is a global energy services company that provides subsea and surface technologies, integrated project solutions and services to support offshore oil and gas exploration and production.

USA Compression Partners is valued at $3.88 billion. The company is a master limited partnership that offers natural gas compression services and equipment to support the transportation and processing of natural gas across North America.

Oceaneering International is valued at $3.47 billion. The company delivers engineered services and products, including subsea robotics, inspection, intervention and advanced technologies, primarily for the offshore energy industry.

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This article originally published on Zacks Investment Research (zacks.com).

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