Should You Investigate Aris Water Solutions, Inc. (NYSE:ARIS) At US$26.37?

While Aris Water Solutions, Inc. (NYSE:ARIS) might not have the largest market cap around , it saw a significant share price rise of 76% in the past couple of months on the NYSE. The company is now trading at yearly-high levels following the recent surge in its share price. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Aris Water Solutions’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Aris Water Solutions

What Is Aris Water Solutions Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Aris Water Solutions’s ratio of 32.89x is trading slightly above its industry peers’ ratio of 31.13x, which means if you buy Aris Water Solutions today, you’d be paying a relatively reasonable price for it. And if you believe that Aris Water Solutions should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Aris Water Solutions’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Aris Water Solutions look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Aris Water Solutions' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in ARIS’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at ARIS? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on ARIS, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for ARIS, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Aris Water Solutions, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for Aris Water Solutions you should be mindful of and 1 of them is a bit unpleasant.

If you are no longer interested in Aris Water Solutions, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.