Is Archrock (AROC) Pricing Attractive After Strong Multi Year Share Price Gains

• If you are wondering whether Archrock is fairly priced or offering value at its recent levels, you are in the right place.
• Archrock's share price recently closed at US$26.06, with returns of 0.2% over 7 days, 3.0% over 30 days, a 2.1% decline year to date, and gains of 6.3% over 1 year, 207.7% over 3 years and 230.9% over 5 years.
• These return figures give useful context for thinking about what investors have been willing to pay for the stock over different periods and how sentiment has shifted over time. They set the backdrop for asking whether current pricing still lines up with the underlying fundamentals.
• On our checks Archrock scores 5 out of 6 for apparent undervaluation, giving it a valuation score of 5. Next we will look at how different valuation methods line up on the stock before finishing with a way to think about value that goes beyond a single model.

Find out why Archrock's 6.3% return over the last year is lagging behind its peers.

Approach 1: Archrock Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company could be worth by projecting its future cash flows and then discounting those back to today’s dollars. It is essentially asking what the stream of future cash that Archrock might generate is worth right now.

For Archrock, the model uses a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve month free cash flow is about $60 million. Analyst estimates feed into projections such as $289.6 million in 2026 and $449 million in 2030, with further years extrapolated by Simply Wall St beyond the explicit analyst horizon.

When these projected cash flows are discounted back, the model arrives at an estimated intrinsic value of about $49.62 per share. Compared with the recent share price of US$26.06, this implies a discount of roughly 47.5%, indicating that, according to this model, Archrock trades at a substantial gap to its DCF estimate.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Archrock is undervalued by 47.5%. Track this in your watchlist or portfolio, or discover 881 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 Archrock.

Approach 2: Archrock Price vs Earnings

For a profitable company like Archrock, the P/E ratio is a useful way to think about value, because it links what you pay directly to the earnings the business generates today. Investors usually accept a higher P/E when they expect stronger earnings growth or see lower risk, and a lower P/E when growth expectations are more modest or risks are higher.

Archrock currently trades on a P/E of 17.43x. That compares with the Energy Services industry average P/E of about 19.80x and a broader peer group average of 30.22x, so the stock sits below both of those benchmarks. Simply Wall St also calculates a proprietary “Fair Ratio” of 17.38x, which is the P/E level its model suggests given Archrock’s earnings growth profile, industry, profit margins, market cap and risk factors.

This Fair Ratio is more tailored than a simple industry or peer comparison, because it adjusts for company specific traits instead of assuming one size fits all. With Archrock’s actual P/E of 17.43x sitting very close to the Fair Ratio of 17.38x, the shares appear broadly in line with what the model suggests.

Result: ABOUT RIGHT

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1445 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Archrock Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. You can create a simple story for Archrock by linking your view of its future revenue, earnings and margins to a forecast and fair value on Simply Wall St’s Community page. You can then compare that fair value with today’s price to decide whether the stock looks attractive for you. The system keeps updating your Narrative when new news or earnings arrive. For example, one investor might build an optimistic Archrock Narrative around the central fair value of about US$31.56 per share, using assumptions like 7.13% revenue growth, a 21.54% net profit margin and an 18.24x future P/E. Another investor might plug in more cautious numbers and arrive at a lower fair value. This gives you two clear stories, side by side, to judge which one fits your own expectations.

Do you think there's more to the story for Archrock? 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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