• If you are wondering whether Valaris is still good value after its recent run, the starting point is understanding how the current share price lines up against a few different valuation yardsticks.
• The stock last closed at US$62.41, with returns of 8.1% over the past week, 21.5% over the past month, 19.7% year to date and 36.1% over the past year, while the 3 year return sits at a 20.7% decline.
• Recent trading activity has kept Valaris on the radar of investors who follow offshore drilling and energy services, especially as sentiment across the sector continues to influence how investors think about contract exposure and day rate sensitivity. Industry wide headlines and contract related announcements have helped shape expectations for where offshore drillers like Valaris might sit in the broader energy supply story.
• On our valuation checklist, Valaris scores 5 out of 6 for potential undervaluation. You can see that full scorecard here: 5 out of 6 valuation score. Next, we will walk through the main valuation approaches behind that score and then finish with a perspective that can help you make better sense of all these numbers.

Approach 1: Valaris Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company could be worth today by projecting its future cash flows and then discounting those back to a single present value figure.

For Valaris, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The company’s last twelve months free cash flow is about $55.2 million. Analysts provide forecasts out to 2027, with free cash flow for that year estimated at $228 million, and Simply Wall St then extrapolates these trends further out to 2035, where projected free cash flow reaches about $1.1 billion.

When all those future cash flows are discounted back to today, the DCF model arrives at an estimated intrinsic value of about $248.43 per share. Compared with the recent share price of US$62.41, this model suggests the stock is around 74.9% undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Valaris is undervalued by 74.9%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Approach 2: Valaris Price vs Earnings

For a profitable company, the P/E ratio is a useful way to think about value because it links what you pay for each share directly to the earnings that each share produces. Higher expected earnings growth and lower perceived risk usually support a higher P/E, while slower growth or higher risk tend to justify a lower P/E.

Valaris currently trades on a P/E of 10.88x. That sits below the Energy Services industry average P/E of 24.34x and also below the broader peer group average of 32.18x. Simply Wall St’s Fair Ratio framework suggests a P/E of 16.36x for Valaris, which is an estimate of what might be reasonable given its earnings growth profile, profit margins, size, sector and company specific risks.

This Fair Ratio aims to be more tailored than a simple comparison with peers or the sector because it adjusts for factors such as growth, risk and profitability rather than assuming all Energy Services companies deserve the same multiple. Set against this Fair Ratio, Valaris’ current P/E of 10.88x screens as lower than what the model points to.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Valaris Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company linked directly to the numbers you think are realistic for its fair value, future revenue, earnings and margins.

On Simply Wall St, within the Community page used by millions of investors, a Narrative ties together three pieces: the story you believe about Valaris, the financial forecast that flows from that story, and the fair value that drops out of those forecasts.

Once you have a Narrative, you can compare its Fair Value to the current market price and use that gap to help decide whether the stock looks attractive to you or whether you prefer to wait. Your view keeps updating as new information such as earnings or news headlines is pulled into the model.

For example, one Valaris Narrative on the Community page might assume a relatively high fair value based on stronger revenue and margin assumptions, while another Narrative might land on a much lower fair value because it bakes in more conservative expectations for contracts and day rates.

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