- If you are wondering whether SM Energy at around US$28.81 is priced for opportunity or already reflects its strengths, the starting point is to understand what the market is currently paying relative to the fundamentals.
- The stock has been volatile in the short term, with a 2.3% decline over the last 7 days, a 10.7% gain over the past month, a 50.6% return year to date, and a 22.4% return over the last year.
- These moves sit against a longer backdrop where SM Energy has delivered a 4.6% return over 3 years and 73.7% over 5 years. Together, that track record and the recent swings are what many investors look at when weighing up whether the current price still makes sense.
- On Simply Wall St’s valuation checks, SM Energy scores a 5 out of 6, which means most of the tested metrics point to undervaluation. The rest of this article will walk through those methods and will also hint at a more rounded way to think about value at the end.
Find out why SM Energy's 22.4% return over the last year is lagging behind its peers.
Approach 1: SM Energy Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model takes estimates of a company’s future cash flows, then discounts them back to today using a required return, giving an indication of what the business might be worth now.
For SM Energy, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is a loss of $291.37m, so the valuation leans heavily on future projections. Analyst and extrapolated forecasts point to free cash flow around $1.47b in 2026 and about $1.34b by 2035, with Simply Wall St extrapolating beyond the explicit analyst horizon.
Putting all projected cash flows together and discounting them results in an estimated intrinsic value of about $124.49 per share. Against a current share price of roughly $28.81, this indicates the stock is trading at a 76.9% discount to this DCF-based estimate of intrinsic value.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests SM Energy is undervalued by 76.9%. Track this in your watchlist or portfolio, or discover 64 more high quality undervalued stocks.
Approach 2: SM Energy Price vs Earnings
For a profitable company, the P/E ratio is a straightforward way to see what the market is paying for each dollar of earnings. This makes it a useful cross check against the cash flow based view discussed earlier.
What counts as a “normal” P/E depends on how investors view growth potential and risk. Higher expected growth or lower perceived risk usually line up with higher P/E ratios, while slower growth or higher risk tend to align with lower P/Es.
SM Energy currently trades on a P/E of 10.60x. That is below the Oil and Gas industry average of about 15.09x and well below the peer group average of 52.24x, so on simple comparisons the stock is on a lower multiple than many alternatives.
Simply Wall St’s Fair Ratio for SM Energy is 20.88x. This is a proprietary estimate of what the P/E might be given the company’s earnings profile, industry, profit margins, market cap and risk factors. It aims to be more tailored than a basic comparison with peers or the broad industry because it adjusts for those company specific attributes.
Comparing the Fair Ratio of 20.88x with the current P/E of 10.60x suggests the shares are trading below that customised benchmark.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your SM Energy Narrative
Earlier it was mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives, which let you turn your view of SM Energy into a clear story that links its business setup to a financial forecast and then to a Fair Value you can compare with the current price. All of this is available within an easy tool on the Community page that is updated as news or earnings arrive. One investor might align with a more optimistic Narrative that supports a Fair Value around US$55.01, while another might lean toward a more cautious Narrative closer to US$22.00. Both can see in one place how their assumptions about future revenue, earnings, margins and P/E multiples translate into what they think the shares are worth and whether that is above or below where they trade today.
For SM Energy, here are previews of two leading SM Energy narratives:
Fair value in this narrative: US$28.82
Implied discount or premium vs recent price: roughly in line with the last close around US$28.81
Assumed annual revenue growth: 30.68%
- Focuses on merger integration, production guidance and drilling inventory as key drivers for future cash generation and earnings.
- Relies on updated assumptions for revenue growth, net profit margin, discount rate and future P/E to support a fair value close to current pricing.
- Highlights balance sheet discipline, dividend policy and capital allocation choices as important to how much upside shareholders might see from the combined business.
Fair value in this narrative: US$22.00
Implied overvaluation vs recent price: about 31.4% above this narrative fair value at a last close of US$28.81
Assumed annual revenue growth: 30.31%
- Frames global decarbonization policies, ESG pressure and basin concentration as headwinds for long term revenues and margins.
- Bases fair value on a lower P/E multiple, thinner future profit margins and a higher share count than the more optimistic views.
- Flags inventory quality, regulatory risk and potential access to capital as factors that could limit how much of the analyst growth outlook translates into shareholder value.
If you want to see how other investors connect these numbers to a full story, including their own assumptions on growth, margins and risks, See what the community is saying about SM Energy.
Do you think there's more to the story for SM Energy? 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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