Should Investors Revisit Baytex Energy After Its Shares Fell 6.5% This Week?

If you’re standing at the crossroads trying to decide whether Baytex Energy is worth a closer look, you’re not alone. Plenty of investors are eyeing this Canadian oil producer and wondering, after a wild ride in recent years, if Baytex’s current price reflects its true value or if another twist could be on the horizon. The stock closed at $3.30 recently, and the numbers tell a story that’s anything but boring. In the past week, shares slipped 6.5%, following a 6.5% climb over the last month. Year-to-date, Baytex is still down 13.4%, and if you zoom out to one year, the drop expands to 24.3%. But anyone who bought in five years ago is sitting on an eye-popping 603.4% gain, which shows that the road has had some dramatic ups along with the downs.

Behind the scenes, Baytex’s recent movement has been shaped by market shifts that favor energy producers able to navigate supply changes and fluctuating oil prices. The market’s changing mood has made investors weigh fresh risk and growth potential, and that’s clearly showing up in the chart.

But does the current price make sense? To get closer to that answer, let’s dig into valuation. Using six common valuation checks, Baytex earns a value score of 3, meaning it comes up undervalued in half of these key areas. Next, we’ll break down exactly what’s behind that score using different valuation approaches. And for the most curious, stick around, as a more insightful way to judge a company’s worth awaits at the end of the article.

Why Baytex Energy is lagging behind its peers

Approach 1: Baytex Energy Dividend Discount Model (DDM) Analysis

The Dividend Discount Model, or DDM, is a classic way to estimate a stock’s fair value by projecting all future dividends and then discounting them back to today’s value. This approach is especially useful for assessing companies that pay steady or predictable dividends, as it centers the company’s ability to return cash to shareholders over the long run.

For Baytex Energy, the DDM uses a projected annual dividend per share of CA$0.09 and assumes dividend growth will be capped at 2.6% each year. The model also considers a return on equity of 9.15% and a payout ratio of -6.76%, which is unusual and suggests current dividends may not be sustainable relative to earnings. The capped growth rate indicates a more conservative take on Baytex’s ability to increase its payouts, even though the company’s expected growth is 9.77% according to analyst estimates.

According to this model, Baytex’s estimated intrinsic value is CA$2.67 per share. With the stock trading at CA$3.30, the DDM signals that shares are about 23.7% above what the company’s long-term dividends would justify, meaning Baytex is currently overvalued by this yardstick.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Baytex Energy.

Our Dividend Discount Model (DDM) analysis suggests Baytex Energy may be overvalued by 23.7%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Baytex Energy Price vs Earnings

For profitable companies like Baytex Energy, the Price-to-Earnings (PE) ratio is a go-to valuation metric. It helps investors gauge how much they are paying for each dollar the company earns, translating complex financials into a single, digestible figure. The “right” PE ratio depends not only on how quickly a company is growing profits, but also the risks it faces. Higher growth or lower risk typically means a higher “normal” PE, while slower growth or higher risk generally push the fair PE lower.

Baytex currently trades at a PE ratio of 6.89x, which is well below the Oil and Gas industry average of 12.30x and also under its peer group average of 12.02x. While this looks like a clear bargain at first glance, it is important to dig deeper than just peer or industry comparisons.

This is where the Simply Wall St Fair Ratio comes into play. The Fair Ratio, in Baytex’s case 4.10x, is calculated based on a blend of company-specific factors, including future earnings growth, risk profile, profit margins, industry context, and market capitalization. This proprietary benchmark aims to give a more accurate picture of what the company’s PE should be, rather than simply mirroring market averages that might not account for these important factors. Comparing Baytex’s actual PE (6.89x) to its Fair Ratio (4.10x) reveals that the current price implies higher expectations than the company’s characteristics justify.

Result: OVERVALUED

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

Upgrade Your Decision Making: Choose your Baytex Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply a story, your own point of view, about a company that connects what you believe will happen (like future revenue, profits, or margins) to a specific fair value for the stock. Rather than relying solely on traditional ratios or analyst targets, Narratives help you personalize your assessment by showing how changes in business performance and industry context actually shape a company’s worth.

On Simply Wall St’s Community page, used by millions of investors, you can explore and create these Narratives easily. They bridge the gap between a company’s story, financial forecasts, and current valuation, offering you a practical tool to decide whether to buy or sell by comparing Fair Value to the current Price. Since Narratives update automatically when new information such as earnings or major news is released, you can quickly see how evolving events impact your outlook.

For Baytex Energy, some investors are optimistic and see operational gains, strong reserve growth, and robust free cash flow supporting a fair value as high as CA$5.00. Others are cautious, pricing in risks like oil price volatility and tariffs with a fair value of just CA$2.50. This demonstrates how Narratives reflect different investment perspectives in real time.

Do you think there's more to the story for Baytex Energy? Create your own Narrative to let the Community know!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com