Wondering if Canadian Natural Resources is truly offering value right now? You are not alone, as plenty of investors are asking the same question after recent moves in the stock.

The share price has seen some action, climbing 4.8% this week and notching up a solid 12.7% gain over the past month. The stock is up 293.9% over the past five years.

Market sentiment has been shaped by news around Canadian oil prices and energy sector developments, particularly as international demand dynamics remain in flux and new government energy policies are debated. Shifts in global crude benchmarks and environmental policy headlines have played a role in fueling recent volatility for the company.

When it comes to valuation, Canadian Natural Resources earns a 3 out of 6 on our value checks, landing it somewhere between opportunity and caution. Yet, those traditional methods may only tell part of the story. Up next, we will dig deeper into the numbers and reveal an even smarter way to approach valuation later in this article.

Find out why Canadian Natural Resources's 6.5% return over the last year is lagging behind its peers.

A Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to today. This provides a present value estimate based on those anticipated profits. For Canadian Natural Resources, analysts and fair value models use a 2 Stage Free Cash Flow to Equity approach to produce these projections.

The company's latest reported Free Cash Flow stands at CA$8.87 billion, and projections suggest steady growth in the coming years. By the end of 2029, Free Cash Flow is forecasted to reach CA$11.49 billion. It is worth noting that analysts only provide estimates for up to five years, with further numbers extrapolated based on trend assumptions.

Using this methodology, the DCF model estimates that Canadian Natural Resources has an intrinsic value of CA$157.70 per share. This is significantly higher than the current share price, pointing to a 69.8% undervaluation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Canadian Natural Resources is undervalued by 69.8%. Track this in your watchlist or portfolio, or discover 900 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 Canadian Natural Resources.

The Price-to-Earnings (PE) ratio is widely regarded as a suitable valuation metric for profitable companies because it directly relates a company’s share price to its earnings per share. This gives investors a clear snapshot of how much they are paying for each dollar of current profit, making it highly relevant for mature, consistently profitable businesses such as Canadian Natural Resources.

Growth expectations and risk play an important role in what is considered a “normal” or “fair” PE ratio. If a company is expected to grow earnings quickly or carries lower risk, investors are typically willing to assign it a higher PE ratio. Conversely, companies with lower growth prospects or higher risk tend to trade at lower multiples.

Canadian Natural Resources currently trades at a PE ratio of 14.89x. This closely matches both the peer group average of 14.74x and the oil and gas industry average of 14.79x. However, Simply Wall St’s proprietary “Fair Ratio” model, which accounts for the company’s future earnings growth, profit margins, size, and risk in addition to its industry, estimates Canadian Natural Resources' fair PE ratio to be 16.67x. Unlike simple peer or industry comparisons, the Fair Ratio provides a more tailored benchmark because it considers factors unique to the business, offering a deeper perspective on what the multiple should be for this specific company.

With Canadian Natural Resources’ actual PE ratio 1.78x below its Fair Ratio, the stock appears undervalued based on this approach.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1422 companies where insiders are betting big on explosive growth.

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, dynamic tool that lets you attach your real story or perspective to the numbers behind a company. This includes your assumptions about its fair value, and what you believe about its future revenue, earnings, and profit margins.

With Narratives, you connect a company’s story directly to your financial forecast and then automatically to an up-to-date fair value. It is as easy as describing your view, setting out your numbers, and letting Simply Wall St's Community platform turn it into a valuation that responds whenever news or earnings results drop.

You can quickly compare your Narrative’s fair value with the current share price, helping you decide when to buy or sell. You can also see how your outlook stacks up against others in the investing community. For instance, one investor might believe Canadian Natural Resources deserves a CA$62.00 price because operational momentum and expanding margins will strengthen long-term returns, while a more cautious view values it at just CA$45.00 due to risks like regulatory pressures and shifting demand.

Narratives help make investment decision-making smarter and more personal by linking your story, the current business reality, and the numbers. All are updated in real time.

Do you think there's more to the story for Canadian Natural Resources? 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.

Companies discussed in this article include CNQ.TO.

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