Is Now the Best Time to Buy ConocoPhillips' Stock?

A few months ago, I took a really deep look at whether or not it was a good time to buy ConocoPhillips' (COP -0.41%) stock. At that time, I concluded that the stock was priced reasonably well compared to its historic average since spinning off Phillips 66 (PSX -2.51%) in 2012, which suggested it was a fine time to buy. Needless to say, the stock has only gotten cheaper since that time as the oil market went crazy, which took ConocoPhillips' stock on a wild ride lower, as we see in the following chart.

COP data by YCharts.

The stock has now fallen 20% in a few short weeks, which put it 26% off of its 52-week high. So, obviously the stock price is cheaper than it was in September. However, a stock's price is not the same thing as its value. So, let's take a closer look at how ConocoPhillips' value compares to its historical averages to see if now really is the best time to buy ConocoPhillips stock.

Drilling down into the numbers
There are a number of ways to value a stock. Most investors are familiar with the price-to-earnings ratio, which tells us how much we are paying for a stock's earnings. However, I personally don't like to use that metric to value an energy company, as earnings can be affected by a company's oil and gas hedges as well as revisions to its reserves. That's why I like to look at a basket of valuation multiples to get a broader picture of value.

In the case of ConocoPhillips, I'll use Enterprise Value to EBITDA, Enterprise Value to Revenue, and Price to Tangible Book Value. The last time I looked at these four numbers in September, the data looked like this:

Source: S&P Capital IQ.

However, with the downdraft in oil prices, as well as another quarter in the books, it's time to revisit these numbers. This time, we'll go back five years to get a better idea of how today's value stacks up to the company's historical valuation over that time.

COP P/E Ratio (TTM) data by YCharts.

I want to make one quick note and point out the notable jump in 2012, which is the result of the spin-off of Phillips 66. The idea behind the spin was to unlock the value of both businesses, which was clearly accomplished, as the post-spin value of ConocoPhillips has trended higher than the value of the company before the spin.

That being said, those numbers show that the recent downdraft in the oil market has really pushed ConocoPhillips' value down to historically low levels. For example, today's P/E ratio of 8.4 is at the lowest point since spinning off Phillips 66. Meanwhile, the EV to EBITDA multiple of 4.4 times is heading toward its historic low point since the spin, while it is also well below the average multiple over the past decade. Even price to tangible book value is well below its 10-year average. Really, any number we look at tells us that the value is as good as it has been in a long, long time. 

Investor takeaway
Suffice it to say, now would appear to be as good a time to buy ConocoPhillips' stock as any time in its most recent history. That's of course assuming that low oil prices aren't here to stay for too long, as those prices would impact the company's future earnings as well as the value of its assets going forward. However, for an investor with a long-term time horizon with a bullish outlook on oil prices, now would appear to be the best time in a long time to buy ConocoPhillips' stock.