Is TotalEnergies Still a Bargain After Recent 7% 30-Day Rally?

• Wondering if TotalEnergies still has value left in the tank? You are not alone, especially as investors keep an eye on this established energy giant.
• In the last week, shares have jumped 4.6%, bringing the 30-day gain to an impressive 7.2% and helping to cement over 112% growth over the past five years.
• TotalEnergies has been in the headlines recently following its strategic investments in renewable projects and new global partnerships, reflecting its commitment to balancing traditional energy with a greener future. These moves may be fueling optimism and are certainly part of the story behind the recent price momentum.
• When it comes to valuation, the company currently scores 5 out of 6 on our value checks. How does that number stack up, and is there more nuance beneath the surface? Let's dig into the different approaches for valuing TotalEnergies, and stay tuned for a perspective that can reveal the bigger picture.

TotalEnergies delivered 3.4% returns over the last year. See how this stacks up to the rest of the Oil and Gas industry.

Approach 1: TotalEnergies Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the fair value of a business by projecting its future cash flows and discounting them back to today's value. This approach gives investors a way to look beyond fluctuating share prices and focus on the company's true earning power over time.

For TotalEnergies, the current Free Cash Flow stands at $14.17 Billion. Analysts project the company's Free Cash Flow to fluctuate modestly over the next decade, reaching about $15.07 Billion by 2035. While analyst estimates extend only a few years out, further projections are extrapolated using trends in the company's performance.

Based on these cash flow forecasts, the estimated intrinsic value for TotalEnergies is €121.52 per share. This suggests that the stock is trading at a significant 53.5% discount to its calculated fair value. In other words, the DCF analysis points to TotalEnergies being substantially undervalued at current prices, assuming the projections hold true.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests TotalEnergies is undervalued by 53.5%. Track this in your watchlist or portfolio, or discover 894 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 TotalEnergies.

Approach 2: TotalEnergies Price vs Earnings

For profitable companies like TotalEnergies, the Price-to-Earnings (PE) ratio is a widely used and dependable way to gauge value. This metric tells investors how much they are paying for each euro of current earnings, a key consideration when a company is steadily generating profits.

The "right" PE ratio for any stock is shaped by expectations for growth and perceived risk. Fast-growing companies typically warrant higher PE ratios, while those facing uncertainty or industry headwinds may deserve a discount. Therefore, context matters when comparing multiples.

TotalEnergies currently trades at a PE ratio of 10x. This is lower than the Oil and Gas industry average of 13.7x and sits well below the average of its peers at 23.9x. The company's proprietary Fair Ratio, calculated by Simply Wall St, stands at 16.2x. This Fair Ratio goes one step further by taking into account not just industry benchmarks, but also specifics like TotalEnergies' earnings growth, profit margins, market cap, and unique risk profile. This results in a more tailored and insightful benchmark.

Comparing these numbers, TotalEnergies’ current valuation is well below its Fair Ratio, indicating that the shares may be undervalued if company fundamentals and growth outlook hold up.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your TotalEnergies 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 the story or perspective you have on a company, based on your expectations for its future revenue, earnings, and profit margins. Narratives take you beyond the numbers by allowing you to connect the company's business context and strategic direction to a tailored financial forecast and, ultimately, a calculated fair value.

Narratives are an intuitive and powerful feature available within Simply Wall St's Community page, used by millions of investors to track and refine their investment process. With Narratives, you can create or adopt a view of TotalEnergies’ future, see the resulting fair value, and instantly compare it to the current price to decide if now looks like a buying or selling opportunity. Even better, Narratives automatically update as new information emerges, such as quarterly earnings or major news events, so your view evolves in real time.

For example, one investor using recent analyst estimates may believe TotalEnergies is worth €77.57 per share by 2028 if cash flows grow and margins strengthen. Another, more cautious investor, may see fair value closer to €52.82 due to risks and a slower energy transition. Both perspectives can be easily created, compared, and shared through Narratives.

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