• Wondering whether Archrock at a recent close of US$35.74 still offers value or if most of the opportunity is already priced in? This article walks through what the current market price might be implying about the business.
• The stock has been relatively steady over the past week with a 0.6% decline, while returns of 9.4% over 30 days, 34.2% year to date and 37.6% over 1 year, as well as a gain of more than 3x over 3 years and 5 years, have caught the eye of many investors.
• Recent market interest has been supported by ongoing attention on energy infrastructure and services companies, as investors reassess how these businesses fit into broader energy and power grid trends. For Archrock, that backdrop provides context for the share price moves you see on the chart rather than a single short term headline.
• Simply Wall St currently gives Archrock a valuation score of 4 out of 6, which suggests that several of the usual checks point to potential undervaluation, but not all of them agree. The next sections therefore break down the main valuation approaches, and finish by looking at a way of thinking about value that goes beyond any single model.

Approach 1: Archrock Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model looks at the cash Archrock is expected to generate in the future, then discounts those projected cash flows back to today to estimate what the business might be worth now.

Archrock's latest twelve month Free Cash Flow is about $147 million. Using a 2 Stage Free Cash Flow to Equity model based on analyst estimates and then extrapolated figures, projected Free Cash Flow reaches $543 million by 2030, with a series of annual forecasts between 2026 and 2035 ranging from roughly $327 million to $687 million, all in $ terms.

When those projected cash flows are discounted back, the DCF model produces an estimated intrinsic value of about $64.38 per share. Compared with the recent share price of $35.74, this implies the stock is around 44.5% undervalued on this method.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Archrock is undervalued by 44.5%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Approach 2: Archrock Price vs Earnings

For a profitable company like Archrock, the P/E ratio is a straightforward way to relate what you pay for the stock to the earnings it generates. Investors usually accept a higher P/E when they expect stronger 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 19.60x. That sits below the Energy Services industry average P/E of 27.03x and also below a peer group average of 61.62x. This reflects a wide range of valuations across companies in the space.

Simply Wall St’s Fair Ratio for Archrock is 19.20x. This proprietary metric estimates the P/E that might make sense given Archrock’s earnings growth profile, industry, profit margins, market cap and risk characteristics. It can often give a more tailored view than a simple comparison with broad industry or peer averages, which may include companies with very different growth and risk profiles.

With the actual P/E of 19.60x sitting very close to the Fair Ratio of 19.20x, the multiple points to the shares being priced at about the level suggested by these fundamentals.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Archrock Narrative

Earlier the article mentioned that there is an even better way to understand valuation, and this is where Narratives come in as a simple way for you to connect your view of Archrock’s story to a forecast and then to a fair value. You can do this by stating what you think its future revenue, earnings and margins could look like, comparing that fair value with the current price to help frame buy or sell decisions, and then having those assumptions update automatically when new information such as earnings or news is added to the Simply Wall St Community page that is used by millions of investors. One investor might build a Narrative that aligns closely with the analyst fair value of US$38.44 and a future P/E of about 21.50x based on confidence in Archrock’s natural gas compression profile, while another might build a more cautious Narrative closer to the consensus target of US$30.89 that places more weight on the risks around regulation, technology and capital access.

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.