Has Canadian Natural Resources Run Too Far After Its 281.4% Five Year Surge?

• Wondering if Canadian Natural Resources is still a smart buy after such a big multi year run? This article will walk through whether the current price still makes sense or if the easy money has already been made.
• The stock has climbed 6.6% over the last month and 10.7% over the past year, on top of a striking 281.4% gain over five years. It is no surprise investors are asking whether the valuation is starting to look stretched.
• Recent moves have come amid a firmer oil price backdrop and ongoing attention on Canadian producers as potential long term beneficiaries of energy supply realignment. In addition, investors have rewarded management for consistent capital returns and balance sheet discipline, helping to underpin sentiment even when commodity headlines get choppy.
• Right now, Canadian Natural Resources scores a 5/6 valuation check result, suggesting it looks undervalued on most of our metrics. Next we will unpack those different valuation approaches, before finishing with a more intuitive way to tie them all together.

Find out why Canadian Natural Resources's 10.7% return over the last year is lagging behind its peers.

Approach 1: Canadian Natural Resources Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth by projecting the cash it can generate in the future and discounting those cash flows back to today in CA$ terms.

For Canadian Natural Resources, the model uses a 2 Stage Free Cash Flow to Equity approach. The company generated roughly CA$8.9 billion of free cash flow over the last twelve months, and analysts expect this to rise to around CA$11.5 billion by 2029. Beyond the explicit analyst horizon, Simply Wall St extrapolates cash flows out to ten years, with projections gradually climbing into the mid CA$14 billion range by 2035 as growth normalizes.

When all of those future cash flows are discounted back, the DCF model arrives at an intrinsic value of about CA$157.66 per share. With the DCF indicating the stock trades at a 69.6% discount to that estimate, the market price implies a significantly lower long term cash flow profile than the model assumes.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Canadian Natural Resources is undervalued by 69.6%. Track this in your watchlist or portfolio, or discover 906 more undervalued stocks based on cash flows.

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

Approach 2: Canadian Natural Resources Price vs Earnings

For profitable companies like Canadian Natural Resources, the price to earnings ratio is a useful snapshot of how much investors are willing to pay today for each dollar of current earnings. It naturally captures how the market is weighing the company’s growth prospects and risks, since faster growing or lower risk businesses typically trade on a higher PE ratio, while more cyclical or riskier ones tend to trade on lower multiples.

Canadian Natural Resources currently trades on a PE of about 15.0x. That sits slightly below both the Oil and Gas industry average of around 15.2x and the peer group average of roughly 15.4x, suggesting the market is pricing it broadly in line with the sector rather than as a clear outlier. Simply Wall St’s Fair Ratio for the stock, however, is higher at 18.3x. This proprietary metric estimates what PE the company might trade on after accounting for its earnings growth profile, profitability, industry positioning, market cap and specific risk factors, making it more tailored than a simple peer or industry comparison.

With the Fair Ratio of 18.3x sitting meaningfully above the current 15.0x, this PE-based framework suggests Canadian Natural Resources may be trading below its implied value on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Canadian Natural Resources Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, an approach that lets you attach a clear story to your numbers by linking your view of Canadian Natural Resources future revenues, earnings and margins to a financial forecast and then to your own Fair Value estimate.

On Simply Wall St, Narratives are an easy tool within the Community page, used by millions of investors. You can quickly set your assumptions, see the Fair Value those assumptions imply, and compare it to today’s share price to decide whether Canadian Natural Resources looks like a buy, a hold or a sell.

Because Narratives are dynamically updated as new information, such as earnings, news or guidance, comes in, your story and valuation evolve alongside the business. This keeps your decisions grounded in the latest data rather than a static one off model.

For example, a bullish investor might build a Narrative around stronger long term cash flows and a Fair Value closer to the top analyst target of about CA$62. A more cautious investor could instead emphasize regulatory and demand risks and settle on a Fair Value nearer the low end around CA$45, showing how different perspectives on the same company can lead to very different, but still structured, investment decisions.

Do you think there's more to the story for Canadian Natural 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.

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