Assessing Plains GP Holdings’ Value After Strong Five-Year Surge and Industry Expansion Deals

• Wondering whether Plains GP Holdings is a smart buy right now? You are not alone, as investors are digging into what drives this stock’s value and if there may be hidden opportunities.
• Recently, shares have edged up 3.4% in the past week and climbed 4.3% over the past month, while the stock has soared an impressive 218.7% over the last five years. This has fueled the conversation around its growth trajectory.
• Analysts have taken note as industry headlines have pointed to stronger demand for oil and gas midstream services, with updated contracts and infrastructure expansion deals making waves in the news. This attention has provided fresh context for the latest shifts in Plains GP Holdings’ share price and market sentiment.
• When it comes to valuation, the company currently holds a 2 out of 6 score based on our key checks for undervaluation. Next, we will dig into the valuation methods. Stay tuned for a perspective at the end of the article that takes valuation analysis one step further.

Plains GP Holdings scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Plains GP Holdings Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates the intrinsic value of a company by projecting its future cash flows and discounting them back to today's dollars. This helps investors determine what the stock is truly worth based on its expected financial performance, instead of just relying on the current market price.

Plains GP Holdings currently reports Free Cash Flow (FCF) of $2.26 Billion, according to the latest trailing twelve months. Analysts forecast FCF to be around $1.59 Billion by 2026, increasing to $1.80 Billion by the end of 2029. Beyond analyst estimates, projections are continued using a steady growth assumption, resulting in forecasted FCF reaching approximately $2.21 Billion by 2035. All cash flow figures are provided in US dollars.

Based on these projections, the two-stage DCF model calculates an intrinsic value per share of $115.56. When comparing this to the current share price, the model indicates the stock is trading at an 84.0% discount to its estimated fair value. According to this approach, Plains GP Holdings may be significantly undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Plains GP Holdings is undervalued by 84.0%. Track this in your watchlist or portfolio, or discover 927 more undervalued stocks based on cash flows.

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

Approach 2: Plains GP Holdings Price vs Earnings

The price-to-earnings (PE) ratio is a widely used metric for valuing profitable companies because it directly connects a company’s earnings to its current share price. This helps investors see how much they are paying for each dollar of profit. This approach makes it easier to compare across companies within the same industry as well as to the broader market.

It is important to note that what constitutes a fair PE ratio depends on various factors. Companies with higher expected growth, strong profitability, or lower perceived risk typically warrant a higher PE ratio. On the other hand, sluggish growth or greater risks can justify lower multiples. Market sentiment and overall industry conditions also play key roles in shaping what is considered normal for a given company.

At present, Plains GP Holdings trades on a PE ratio of 59x. This is meaningfully higher than the oil and gas industry average of 13.3x and the average for similar peers, which sits around 25x. To provide a tailored benchmark, Simply Wall St’s proprietary Fair Ratio for Plains GP Holdings is calculated at 28.7x. The Fair Ratio is beneficial because it accounts for the company’s specific growth outlook, profitability, business risks, and scale within the industry. This gives a more nuanced assessment than broad comparisons against peers or industry averages.

Comparing Plains GP Holdings’ actual PE ratio of 59x with its Fair Ratio of 28.7x suggests that investors are paying a significant premium above the justified level, which points to the stock being overvalued on this measure.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Plains GP Holdings Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your investment story, combining your expectations for a company’s future revenue, earnings, and profit margins with an estimated fair value, all grounded in what you believe could happen next.

By linking a company’s broader story to a specific financial forecast, Narratives help you see how your perspective translates into fair value. This moves beyond just the numbers to the rationale behind them. Narratives are available to everyone on Simply Wall St within the Community page, making advanced yet intuitive investment thinking accessible to millions of users.

With a Narrative, you can easily update your investment view as real-world events unfold, from news to earnings announcements, and instantly compare your fair value against the current price to spot opportunities. For Plains GP Holdings, for example, one investor might see resilience and sector tailwinds, leading to a fair value estimate as high as $26.00 per share. Another might focus on commodity risk and set their fair value closer to $17.50. Narratives make it possible to see, challenge, and improve your decision-making using both the story and the math behind your investment outlook.

Do you think there's more to the story for Plains GP Holdings? 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.