Should You Reassess Diamondback Energy Amid Viper Asset Sale Talks and Recent Price Swings?

If you're holding shares of Diamondback Energy or eyeing the ticker, it's only natural to question where the stock goes from here. This isn't just a moment-to-moment rollercoaster; with oil and gas, the landscape shifts beneath your feet almost daily. Just think: over the last 5 years, Diamondback's stock has surged a staggering 529%, but it's clearly not all smooth sailing. The stock is down 14.8% since January and has dropped 23.5% over the past year, yet managed a 3.8% gain over the past month, even after a 4.7% slide this past week. Such volatility raises tough questions about risk and opportunity.

Some of the recent turbulence connects back to news that’s reverberated through the energy sector. For example, Diamondback's subsidiary, Viper Energy, is reportedly considering selling non-Permian assets, catching investor attention about where the company will focus next. And when the CEO openly says U.S. oil output growth could stall at current oil prices, you better believe people take notice. What happens if certain drilling sites are no longer profitable in this price environment?

Amid these swings, you might be surprised to learn this: by a strict numbers-based valuation, Diamondback looks compelling. The company passes all 6 key valuation checks, giving it a perfect value score of 6. That means, at least on paper, it’s flashing undervalued signals across the board. But of course, numbers only tell part of the story.

So, how do we actually gauge value? Next, I'll walk through the most common ways investors rate companies like Diamondback, and if you stick around, we'll also look at a more holistic way to judge whether the stock deserves a spot in your portfolio.

Why Diamondback Energy is lagging behind its peers

Approach 1: Diamondback Energy Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the value of a company by projecting its future cash flows and discounting them back to today's dollars. In other words, it answers what Diamondback Energy is worth now, based on the cash it is expected to generate for shareholders in the future.

For Diamondback Energy, the most recent Free Cash Flow (FCF) is reported at $301 Million. Projections for the coming years indicate a strong upward trajectory, with analyst estimates reaching over $5.3 Billion by 2026. Looking out a full decade, Simply Wall St's model extends these projections to just above $6 Billion by 2035. These figures reflect both direct analyst forecasts through 2029 and sophisticated extrapolations for later years.

By discounting all these expected future cash flows to their present value, the DCF model arrives at an intrinsic value of $396.19 per share. This represents a discount of 64.1% compared to where shares currently trade, which suggests that the stock is significantly undervalued by the market right now.

Result: UNDERVALUED

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

Our Discounted Cash Flow (DCF) analysis suggests Diamondback Energy is undervalued by 64.1%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Diamondback Energy Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is widely regarded as the go-to valuation metric for profitable companies like Diamondback Energy. This ratio helps investors see how much they are paying for each dollar of the company’s earnings, making it a straightforward way to assess value.

A "fair" PE ratio isn’t set in stone. It usually rises when a company is expected to deliver stronger earnings growth or is seen as lower risk, and shrinks when the outlook is less certain. For context, Diamondback Energy's PE ratio currently stands at 10.8x. That is lower than both the industry average of 13.0x for oil and gas and the average of its Nasdaq-listed peers, which is 19.8x.

Rather than rely on “one-size-fits-all” industry and peer averages, Simply Wall St’s proprietary “Fair Ratio” goes a step further. This metric factors in specifics like Diamondback’s expected earnings growth, profit margin, market cap, industry landscape, and risk profile to estimate a more tailored fair PE ratio. For Diamondback, the Fair Ratio sits at 17.8x. Because the company’s actual PE is well below this level, the data suggests that Diamondback Energy remains undervalued relative to its recent earnings strength, risk, and growth prospects.

Result: UNDERVALUED

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 Diamondback Energy Narrative

Earlier, we mentioned that there’s an even better way to understand a company’s value. Let’s introduce you to Narratives. A Narrative is more than just numbers; it is your personal story or perspective about a company like Diamondback Energy that ties together your assumptions about future revenue, earnings, and margins. It essentially explains why you think the stock should trade at a certain fair value.

This approach helps you connect a company’s business outlook to a set of financial forecasts, which then generate a custom fair value. This lets you see if your view of Diamondback justifies a higher or lower price than the market right now. Narratives are user-friendly tools, available for free on Simply Wall St’s Community page, where millions of investors share, debate, and update their forecasts in real time as news and earnings reports roll in.

These dynamic Narratives empower investors to quickly see whether it might be a great time to buy, sell, or hold. Every Narrative compares its Fair Value against the current share price, automatically flagging potential opportunities or risks. For instance, some investors’ Narratives on Diamondback Energy are bullish, modeling robust production growth and cost savings, leading them to a fair value as high as $222 per share. More cautious outlooks, factoring in concerns about rising costs or oil price swings, land closer to $143.

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

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