Somewhere in our psyche is the dream of being able to buy at the very bottom of the cycle. Whether it is acreage or equipment, commodities or equities, maybe we’ve pulled it off once or twice— but it’s not a regular occurrence. Soon we learn it’s prudent to hold back some dry powder. That way, if the bargain we’re itching to buy goes lower, there’s still room to add to the position and lower its cost basis.

Something similar—but perhaps harder— applies to buying on the way up. With equities, for example, the risk is that you’ve “missed” a buying opportunity. Valuations are increasingly rich, and now it’s tough to “chase” a name previously overlooked. Perhaps the fundamental picture is improving. Do you take a partial position, hoping for a pullback to add to it, or go all-in with a full position?

A quandary of this kind has faced energy investors, who are paying increasing attention to the oilfield services sector. With market conditions clearly tightening in some product service lines, such as pressure pumping, sand and coiled tubing, service costs inflation is the “singular topic” that dominates almost every meeting, according to a recent research note by Tudor, Pickering, Holt & Co.

“When E&P analysts spend most of their time talking service, you know positions are shifting,” it said.

Simmons & Co. is modeling net annualized well cost inflation of 15% for 2017 and 13% for 2018, with projected cost increases being net of well productivity gains. These include efficiency gains from having improved geo-steering, longer laterals, tighter cluster spacing, and higher fluid and proppant loadings.

In well stimulation, quarterly pricing per stage count was running 17% over thirdquarter levels as of mid-fourth quarter of last year, according to Richard Mason, chief technical director, upstream, for Oil and Gas Investor (see January, 2017, Oil and Gas Investor). While this partly reflected higher proppant volumes being used, oilfield service providers are in some cases discussing price increases for pressure pumping “of 10% or more” on top of those related to proppant.

Channel checks show “pockets of pricing improvement,” including in pressure pumping, according to Cowen & Co.’s Marc Bianchi. “Frack service companies are seeing improving utilization of working equipment and state they require a 20% to 30% price increase to deploy stacked equipment,” he said.

What about prices of oilfield service stocks?

“Oilfield services stocks are not cheap on any 2018 valuation metric,” stated the Credit Suisse research team headed up by Jim Wicklund in an early January report. “But we expect to see upward earnings revisions to start in the first quarter of 2017 and continue for the next few years. This is the inverse of the past two years of downward earnings revisions, as we expect management teams to under-promise and over-deliver on pricing and utilization gains as the cycle turns.”

Credit Suisse based its sector upgrade on several factors, including full-cycle returns measured from when the rig count hit its trough level. The median trough-to-peak average return over past cycles for oilfield services stocks has been 33%, it noted, and 52% over the latest four cycles. “Keep in mind, stocks are only up 18% since the rig count trough on May 27, 2016,” it said.

Credit Suisse also addressed the “logical pushback” that oilfield services stocks trade at lofty levels that fully price in a recovery. Using Halliburton as an example, and looking at consensus estimates of EBITDA for 2011 during the 2008-2009 financial crisis when the rig count troughed on July 12, 2009, it found that the 2011 estimates made in June of 2009 understated actual 2011 EBITDA by 40%.

“In our view, 2018 EBITDA estimates today will ultimately prove to be too low, similar to how 2011 EBITDA estimates were significantly too low in 2009,” observed Credit Suisse. “We see significant upside potential to the 2018 estimates, which will normalize the valuations much more than is currently understood.”

Interestingly, investors appear to be well aware of the seemingly high valuations. In a survey by RBC Capital Markets, 60% of respondents said they were using an above-average Enterprise Value-to-EBITDA multiple to value oilfield services stocks.

Maybe it all boils down to conviction.

“The 2014-2016 downcycle was the worst in a generation, both in terms of length and speed of rig count decline,” said Credit Suisse. “The notion that the entire recovery has been discounted in the stocks just a few months off the bottom seems far-fetched.”

However, valuation ranked a distant third to price and earnings revisions as key drivers of potential stock performance.