Is SM Energy a Hidden Opportunity After Shares Fall 33% in 2025?

If you are standing at the crossroads with SM Energy stock, you are not alone. Plenty of investors are weighing their options right now, given how the market’s perception of the company seems to be shifting. The recent numbers tell a fascinating story, even if they initially look a bit rocky: while SM Energy’s shares are down 33.4% for the year to date and have slid 31.1% over the past twelve months, the 5-year return is a staggering 1337.6%. That kind of long-term growth is hard to ignore, especially when the short-term pain sits next to it on the chart. In the last week, the stock is slightly up by 0.1% and has gained 2.1% over the past month, suggesting that some buyers are testing the waters after a prolonged dip.

These moves may have as much to do with evolving market expectations around the energy sector as they do with SM Energy itself. Shifts in energy prices and news around resource development have prompted changes in both risk and growth perceptions among investors. No single headline has moved the needle dramatically, but a steady drumbeat of updates has kept investors engaged, always rethinking the price they are willing to pay.

But the real question, of course, is valuation. Here is something you do not want to miss: SM Energy recently notched a value score of 5 out of 6, meaning it is undervalued by most key metrics compared to its peers. In the next section, we will dig into those valuation checks, see how SM Energy stacks up, and later, get into an even deeper technique for judging whether it is time to buy, hold, or move on.

Why SM Energy is lagging behind its peers

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

A Discounted Cash Flow (DCF) model estimates a company’s true worth by forecasting all future cash flows the business is expected to generate, then discounting those projections back to today. This approach aims to determine what the business is worth now, based on its ability to generate actual cash in the future.

Looking at SM Energy’s figures, its last twelve months of Free Cash Flow (FCF) came in at -$148.9 million, indicating the business recently spent more cash than it earned. However, analysts expect this to turn around quickly, projecting the company could produce $415 million in annual FCF by 2029. Several analyst estimates cover the next five years. Further annual projections beyond that are reasoned out by the valuation model, factoring in growth and sector trends.

Using this method, the estimated intrinsic value for SM Energy sits at $55.01 per share. When you compare this to where the stock currently trades, it reveals the shares are trading at a 51.4% discount to their assessed fair value. In short, the model suggests SM Energy is significantly undervalued 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 SM Energy.

Our Discounted Cash Flow (DCF) analysis suggests SM Energy is undervalued by 51.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: SM Energy Price vs Earnings

For companies that are profitable, the Price-to-Earnings (PE) ratio is often the go-to measure for valuation. It lets investors see how much they are paying for each dollar of current earnings, providing a direct gauge of value that is easy to compare across the market. The PE ratio is especially meaningful for established businesses like SM Energy that generate consistent profits.

Of course, not all PE ratios are equal. Growth expectations, profit margins, risk factors, and sector dynamics all play a part in what could be considered a “normal” or “fair” PE for a given business. Companies expected to grow earnings quickly, or that have lower risk, can justify higher multiples. On the other hand, companies facing headwinds or greater risk typically command lower PE ratios from investors.

Right now, SM Energy trades at a PE ratio of 3.8x. This is less than half the industry average of 12.8x and well below the average for its peers at 10.6x. Instead of just comparing these figures, it is more insightful to consider the “Fair Ratio.” This is Simply Wall St’s proprietary benchmark, which calculates what a suitable PE ratio for SM Energy should be by accounting for the company’s growth outlook, risks, margins, industry, and even its market capitalization. For SM Energy, the Fair Ratio comes out to 11.2x. With the actual figure at just 3.8x, this suggests that, based on a well-rounded set of factors, the market may be undervaluing the business right now.

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 SM Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is a simple, accessible way to capture your perspective on a company, the story you believe about its future, by setting your own expectations for things like fair value, future revenue, profit margins, and earnings. Instead of just looking at numbers in isolation, Narratives connect a company’s story to a financial forecast and then translate that directly into a current fair value estimate. This makes it straightforward for you to decide if SM Energy is a buy, hold, or sell, using a tool available right now on Simply Wall St's Community page, where millions of investors are forming and sharing their Narratives.

As new news or earnings reports arrive, Narratives dynamically update so your insights are always relevant. For example, some investors currently forecast a fair value as low as $27 based on worries about shale basin risks, while others see as much as $59 per share driven by operational improvements and margin growth, showing just how wide opinions can swing at any moment. Narratives give you a practical way to benchmark your own outlook against the market and decide at a glance how to act the next time SM Energy’s price moves.

Do you think there's more to the story for SM 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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