The Santos Ltd (ASX: STO) share price is up 2.7% to $7.93 in afternoon trading on Thursday.
It has gained 13.45% over the past month of trade, including a significant surge from 18 August.
As oil markets continue to cool down, investors have been shy about rewarding resource players such as Santos. However, natural gas futures remain buoyant.
Brent Crude oil now trades up 2.3% over the month. European and United Kingdom gas contracts are up 65% and 71% respectively.
Returns for Santos investors over the past 12 months are seen on the chart below.
Are Santos shares still worth buying?
Santos recently delivered an impressive set of results that saw free cash flow expand alongside net profit after tax (NPAT).
However, the market overlooked this with impatience growing on the oil and gas giant's pace of promised asset sell-downs.
Yet, Santos also trades at a relative discount to peers in the GICS Oil, Gas & Consumable Fuels sector.
For instance, Santos trades on a trailing price-to-earnings (P/E) ratio of 10.8x. It also trades at 1.3x the book value of its equity (price-to-book (P/B) ratio).
Looking at the largest 25 names in the sector, both of these multiples are below the sector median. The median scores are 21x trailing P/E and 2.8x P/B respectively, according to Refinitiv Eikon data.
As such, it could be argued that the Santos share price is still relatively cheap compared to its peers based on these two ratios. The question is, whether this discount is justified, or if the company is undervalued.
What else is there to consider?
Looking ahead, the market has given us some additional colour.
It has Santos priced at a forward P/E (next 12 months) of 13.7x, well ahead of the sector's 2x forward P/E.
This means that looking ahead, investors are expecting an above-sector result from Santos in terms of earnings and/or share price.
Aside from that, other measures of corporate value for Santos are arguably promising as well. The oil and gas giant did generate more than $1 billion in free cash flow (FCF) net of dividends in the six months to June 2022.
That's nearly double the $565 million in semi-annual FCF recorded back in December. It's also miles ahead of the $325 million in FCF recorded by June 2021.
Santos also generated a return on invested capital (ROIC) of 9% at its last earnings. It also booked a return on equity (ROE) of nearly 14%. Again, both of these are above the sector median.
These certainly aren't weak numbers, hence, the company definitely isn't lagging fundamentally. The case can therefore be made for Santos based on relative valuation.
What do the experts think of the Santos share price?
Analysts covering Santos like the share price, too. At the moment, 16 out of 16 have it rated as a buy, according to Refinitiv.
This comes after UBS, Credit Suisse, and Barclay Pearce Capital each reiterated their buy ratings in late August.
The consensus price target from all brokers is $9.51 per share. This suggests there could be more upside yet to be priced in should the group be correct.
Therefore, it appears the market is looking for more than just free cash flow and profitability in Santos, and analyst sentiment is still bullish.
The Santos share price is up 20% this year to date and 29% in the past 12 months of trade.
