Is It Time To Reassess Permian Resources (PR) After Recent Share Price Weakness

• If you are wondering whether Permian Resources is priced attractively today, or if the easy gains are already behind it, this article walks through the numbers so you can judge the value for yourself.
• The stock last closed at US$13.50, with a 3.8% decline over the past week, an 8.7% decline over the past month, and a 6.2% decline year to date, while the 3 year return stands at 65.1% and the 5 year return is very large.
• Recent share price moves sit against a backdrop of ongoing interest in US shale producers and how they fit into investors' energy exposure. For Permian Resources, this context matters because shifts in sector sentiment and capital allocation often feed directly into how the market prices companies like this.
• On our checklist of 6 valuation tests, Permian Resources scores a full 6 out of 6. Next, we will walk through traditional valuation approaches before finishing with a way of thinking about value that can add even more clarity.

Find out why Permian Resources's -6.0% return over the last year is lagging behind its peers.

Approach 1: Permian Resources Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth by projecting its future cash flows and discounting them back to today’s value.

For Permian Resources, the model used is a 2 Stage Free Cash Flow to Equity approach. The company’s last twelve months Free Cash Flow is about $479.2 million. Analysts provide detailed forecasts for the next several years. Beyond that point, Simply Wall St extends the projections, with Free Cash Flow expected to reach $2,237.6 million in 2030 based on these cash flow projections.

Bringing all those future cash flows back to today using the DCF model results in an estimated intrinsic value of about $64.68 per share. Compared with the recent share price of US$13.50, this implies the stock is around 79.1% undervalued according to this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Permian Resources is undervalued by 79.1%. Track this in your watchlist or portfolio, or discover 883 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Permian Resources.

Approach 2: Permian Resources Price vs Earnings

For a profitable company like Permian Resources, the P/E ratio is a useful way to relate what you pay for the stock to the earnings it generates per share. A higher or lower P/E often reflects what the market is willing to pay based on expectations for future earnings and how risky those earnings are perceived to be.

Stronger growth profiles and lower perceived risk typically support a higher “normal” or “fair” P/E, while slower growth or higher risk usually align with a lower multiple. Permian Resources currently trades on a P/E of 12.38x. That sits slightly below the Oil and Gas industry average of about 13.03x and well below the peer group average of 17.05x.

Simply Wall St’s Fair Ratio for Permian Resources is 18.73x, which is its proprietary estimate of what the P/E might be given factors such as earnings growth, profit margins, industry, market cap and company specific risks. This tends to be more tailored than a simple comparison with industry or peer averages because it aims to reflect the company’s own profile rather than broad group norms. Comparing the Fair Ratio of 18.73x with the current P/E of 12.38x suggests the shares trade below this model based estimate.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1446 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Permian Resources Narrative

Earlier we mentioned that there is an even better way to think about valuation. This is where Narratives come in as your way of attaching a clear story to the numbers by linking your view on Permian Resources future revenue, earnings and margins to a forecast, and then to a Fair Value that you can compare with today’s price on Simply Wall St’s Community page. Narratives are available to millions of investors, update automatically when new news or earnings arrive, and can differ widely. For example, one investor might build a Narrative around the higher analyst expectations, using earnings of US$2.8b and a Fair Value close to the US$22.00 bullish price target. Another might lean on the more cautious view with earnings of US$1.1b and a Fair Value nearer the US$14.00 bearish target. This gives you a simple way to see where your own Fair Value sits versus the current share price and to decide what that means for your next move.

Do you think there's more to the story for Permian Resources? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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