Should Investors Reevaluate Murphy Oil After This Year’s 10.6% Decline?

• Wondering if Murphy Oil's recent share price drop could be your chance to buy at a bargain? You are not alone, as many investors watch for just this kind of opportunity.
• The stock has slipped by 3.6% over the past week and is down 9.1% for the month. This marks a rough start to the year with a 10.6% decline year-to-date. Its five-year return is 275.3%.
• Recent news reveals renewed attention on the energy sector amid shifting oil prices and broader market swings, providing vital context for the latest price action. Market commentators are weighing long-term supply and demand factors, which can strongly influence sentiment toward companies like Murphy Oil.
• On our valuation checks, Murphy Oil scores just 1 out of 6 for being undervalued. There are real questions about whether it is currently a good deal or not. We will break down the usual ways of valuing stocks next, and at the end, share an even deeper approach that goes beyond just the numbers.

Murphy Oil scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Murphy Oil Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and then discounting those amounts back to today's dollars. This helps gauge whether a stock's current price reflects its future earning potential.

For Murphy Oil, the DCF model uses projections of Free Cash Flow (FCF) in US dollars. The company's latest reported FCF stands at $628.6 million. Analysts estimate future annual FCFs for the next several years, and Simply Wall St extrapolates these numbers further out. By 2027, Murphy Oil's FCF is forecasted to reach $178 million. Some subsequent years are expected to be lower due to changing industry assumptions.

After applying the 2 Stage Free Cash Flow to Equity method and discounting all projections, the DCF analysis assigns Murphy Oil an intrinsic value of $6.72 per share. This is significantly below the current market price and implies the stock is 311.9% overvalued based on present cash flow prospects and growth expectations.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Murphy Oil may be overvalued by 311.9%. Discover 839 undervalued stocks or create your own screener to find better value opportunities.

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

Approach 2: Murphy Oil Price vs Earnings

The price-to-earnings (PE) ratio is a widely used valuation metric for companies that are solidly profitable, such as Murphy Oil. It helps investors gauge whether a stock’s price reflects its current earnings power. Profitable companies tend to be compared on this basis because earnings are a direct driver of shareholder value and future growth potential.

The “right” PE ratio for any company depends on a variety of factors, including growth expectations and risk. Generally, companies expected to grow faster or with more stable earnings command higher PE multiples. Those with higher risks or slower growth typically trade at lower PEs.

Murphy Oil's current PE ratio is 13.8x, which is above the peer average of 6.8x and slightly higher than the Oil and Gas industry average of 12.9x. It is also important to consider Simply Wall St’s "Fair Ratio" of 14.9x for Murphy Oil, which factors in the company’s specific growth outlook, risk profile, profit margins, market capitalization, and its place in the industry.

Unlike a simple peer or industry comparison, the Fair Ratio provides a more nuanced benchmark by accounting for what actually makes Murphy Oil unique. This includes growth, risks, and profitability, rather than just how it compares to the average competitor.

With Murphy Oil trading just below its Fair Ratio, the valuation appears to be about in line with the company’s fundamentals.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Murphy Oil Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is a user’s story behind the numbers, their personal view on Murphy Oil’s business, its future earnings, margins, and what the stock should really be worth.

With Narratives, you combine your perspective on the company’s direction, how much revenue and profit it will generate, and the risks or opportunities it faces, to create your own financial forecast and resulting fair value for Murphy Oil. This approach links the company’s real-world story to a forecast, giving you a clear price target grounded in your beliefs and current information.

This powerful yet simple tool is available on Simply Wall St’s Community page, where millions of investors contribute Narratives to guide their decisions, all with just a few clicks. Narratives allow you to compare your Fair Value with the latest share price, so you can decide when to buy, sell, or hold with confidence.

As new earnings or breaking news arrives, Narratives update automatically, keeping your view relevant and helping you react with insight, not emotion. For instance, some investors believe Murphy Oil could be worth as little as $23 per share if the company faces cost overruns or as much as $37 if offshore exploration pays off. Your Narrative truly puts your outlook at the center.

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