Is Diversified Energy (NYSE:DEC) Undervalued? A Fresh Look at Its Current Valuation

Diversified Energy (NYSE:DEC) shares saw a slight uptick today, drawing attention from investors curious about the underlying drivers. With notable swings over the past month, there is interest in understanding what is impacting the stock’s recent performance.

See our latest analysis for Diversified Energy.

Diversified Energy’s 13% share price return over the past month suggests some renewed optimism, even though momentum has been mixed this year, with the stock still down 15% year-to-date and total shareholder return nearly flat across twelve months. Long-term holders have seen significant declines, but the recent lift points to shifting sentiment, perhaps as expectations around value or risk start to change.

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The question now is whether Diversified Energy is trading below its true value or if recent gains reflect the market already factoring in its future prospects. This raises the possibility of a window for buyers, or it may be that growth is already accounted for.

Price-to-Sales of 1x: Is it justified?

At $14.80 per share, Diversified Energy’s price-to-sales (P/S) ratio stands at 1x, far below the peer average of 18.6x. This could indicate a potential undervaluation when compared with similar companies in the sector.

The price-to-sales ratio compares a company’s stock price to its revenues, offering a quick snapshot of how much investors are willing to pay for each dollar of sales. For an energy company like Diversified Energy, this metric helps gauge whether the market is underpricing the company relative to its revenue, especially during periods when profitability might temporarily lag.

With a P/S ratio of 1x, Diversified Energy appears significantly less expensive than industry peers and its own estimated fair price-to-sales ratio of 1.4x. This suggests there may be a gap between current market sentiment and the level the market could reach if revenue growth or profitability trends improve.

Explore the SWS fair ratio for Diversified Energy

Result: Price-to-Sales of 1x (UNDERVALUED)

However, lingering concerns about recent net losses and inconsistent longer-term returns could reduce optimism and make a turnaround in sentiment more difficult.

Find out about the key risks to this Diversified Energy narrative.

Another View: SWS DCF Model Suggests Strong Undervaluation

Looking at our DCF model for Diversified Energy presents an even starker picture. The SWS DCF model estimates a fair value of $120.25, which is significantly higher than the current market price of $14.80. This suggests the stock is trading at about 88% below its calculated intrinsic value.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Diversified Energy for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 922 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Diversified Energy Narrative

If you have a different perspective or would rather dig into the figures independently, you can craft a personal take in just a few minutes, so Do it your way

A great starting point for your Diversified Energy research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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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.

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