• Investors may be wondering whether Permian Resources, at around US$20 a share, still offers value or if most of the opportunity is already priced in.
• The stock has been volatile recently, with a 7.1% decline over the last week and a 6.1% decline over the last month. Even so, it still sits on a 39.4% return year to date and a 60.7% return over the last year.
• These moves come against a backdrop of ongoing attention on the company within the US energy sector, as investors weigh its position in the Permian Basin and its approach to capital allocation. Market commentary has focused on how its size and asset base compare with other listed oil and gas producers, which helps frame expectations for risk and reward.
• Simply Wall St assigns Permian Resources a value score of 4 out of 6. This invites a closer look at how different valuation methods line up today and points to a broader way to think about value that will be covered at the end of this article.

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

A Discounted Cash Flow model takes projected future cash flows and then discounts them back to today using a required rate of return to estimate what the business might be worth right now.

For Permian Resources, Simply Wall St uses a 2 Stage Free Cash Flow to Equity model. The company’s last twelve months free cash flow is about $534.8 million. Analyst estimates are available for the next few years, and beyond that Simply Wall St extrapolates the figures. Under this approach, free cash flow is projected to be about $2.3 billion in 2030, with a path of projected cash flows each year between 2026 and 2035 that are then discounted back to today.

On these assumptions, the DCF model arrives at an estimated intrinsic value of about $61.92 per share. Compared with a current share price around $20, this implies the stock is roughly 67.6% undervalued based on this methodology.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Permian Resources is undervalued by 67.6%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Permian Resources Price vs Earnings

For profitable companies, the P/E ratio is a useful shorthand because it tells you how many dollars you are paying for each dollar of current earnings. It ties the share price directly to the earnings power that equity holders are already seeing today.

What counts as a “normal” or “fair” P/E depends on how fast earnings are expected to grow and how risky those earnings appear to be. Higher growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk usually points to a lower one.

Permian Resources currently trades on a P/E of about 25.9x. That sits above the Oil and Gas industry average of roughly 14.2x and also above the peer average of about 20.8x. Simply Wall St’s Fair Ratio for the stock is 28.3x, which is its proprietary view of what a reasonable P/E could be given factors like earnings growth, profit margins, industry, market cap and company specific risks. This tailored Fair Ratio can be more informative than a simple comparison with industry or peer averages because it adjusts for these company characteristics.

On this basis, the current P/E of 25.9x is below the Fair Ratio of 28.3x, which points to the shares being undervalued using this method.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Permian Resources Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced here as clear stories that you and other investors build around the numbers. This happens by linking your view of Permian Resources’ future revenue, earnings and margins to a financial forecast and then to a Fair Value that can be compared with today’s share price on Simply Wall St’s Community page. On that page, Narratives update automatically when new earnings or news arrive. For example, one Permian Resources Narrative currently anchors on a Fair Value of about US$19.00, while another sits closer to US$29.37. This reflects how different investors can look at the same company and reach very different conclusions about when the stock appears attractive or expensive.

For Permian Resources, however, here are previews of two leading Permian Resources Narratives to make comparison easier:

Fair value: US$25.00 per share

Implied discount to this fair value: about 19.6% compared with the last close around US$20.08, based on that narrative’s own fair value anchor

Revenue growth used in this narrative: 22.28%

• Focuses on low operating and development costs in the Delaware Basin, which support a cost advantage versus higher cost producers.
• Points to a sizeable proved reserve base and a multi year drilling runway acquired during weaker parts of the cycle.
• Highlights a moderate leverage profile and a mixed capital return approach that includes dividends, buybacks, debt reduction and M&A.

Fair value: US$19.00 per share

Implied premium to this fair value: about 5.7% compared with the last close around US$20.08, based on that narrative’s own fair value anchor

Revenue growth used in this narrative: 4.78%

• Frames Permian Resources within a cautious view on long term oil demand, ESG constraints and potentially higher financing costs for fossil fuel producers.
• Flags risks around leverage, acquisition driven growth, possible rising well costs and the quality of remaining inventory in the basin.
• Uses analyst assumptions that pair mid single digit revenue growth and slightly lower margins with a relatively high future P/E, which together produce a fair value close to US$19.00.

These two narratives show how the same company data can lead to very different conclusions depending on the weight you place on cost structure, balance sheet strength, long term oil demand and the valuation multiple you think is realistic. If you want to line up your own view with these community narratives and see how the fair values evolve as new data comes in, To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Permian Resources on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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.