Last fall, ConocoPhillips (NYSE:COP) outlined its three-year operating plan, anticipating that it could increase production at a 5% compound annual growth rate assuming oil averaged $50 a barrel. While the return to a growth trajectory was nice to see, its forecast paled in comparison to rivals like EOG Resources (NYSE:EOG) and Anadarko Petroleum (NYSE:APC), which both project double-digit oil production growth rates over the next few years.

However, while ConocoPhillips' production is on pace to grow at a slower rate than rivals, that doesn't mean the company is falling behind. That's because its focus going forward isn't just to increase production but also to grow the value of the company. It's doing that by concentrating its efforts on expanding two different metrics that show the company is a better growth stock than investors think.

Oil pumps with the sun setting in the background.

Image source: Getty Images.

Growing what matters most

ConocoPhillips' three-year operating plan will see it spend about $5.5 billion per year on drilling new wells, which should increase its overall output at a 5% compound annual growth rate. However, what's noteworthy about this plan is that the company's focus isn't on simply increasing production but on drilling wells that will boost margins, which it sees expanding at a similar 5% compound annual pace. Because the company is growing production that expands margins, cash flow is set to increase at a more-than-10% compound annual rate, and that's assuming $50 oil over that time frame.

That double-digit growth rate at such a low oil price is impressive for a company as big as ConocoPhillips. Furthermore, with oil now around $70 a barrel, the company is growing cash flow at an even quicker pace, which already allowed it to add $500 million to its share repurchase program for the year, boosting its planned buyback to $2 billion. 

Growing the metric that matters more to investors

While $5.5 billion is a lot of money, it's well below ConocoPhillips' anticipated annual cash flow because the company isn't reinvesting everything that comes in on drilling more wells like some rivals. Instead, the oil giant plans to return between 20% to 30% of its annual cash flow to investors via the dividend and share repurchases. Furthermore, it's using the cash proceeds from asset sales to pay down debt.

Because the company is allocating so much capital to things other than increasing production, it doesn't believe its production growth rate is the right metric to judge it by. Instead, the company prefers to use production growth per debt-adjusted share (DAS), which takes into account the impact of the buyback and debt repayment. For 2018, the company expects production per DAS to increase 16%, which is a much faster pace than output is growing on an absolute basis.

This metric makes for a better apples-to-apples comparison versus other oil stocks. While Anadarko Petroleum, for example, is on pace to increase its oil production by 13% this year, its output will only be up 15% on a DAS basis in 2018 because it's not allocating as much capital to share repurchases and debt retirement as ConocoPhillips. EOG Resources, meanwhile, is on pace to increase its U.S. oil output 18% this year, and by that same rate on a DAS basis since it's not buying back stock and only plans to retire a minimal amount of debt in 2018. Those numbers show that ConocoPhillips is growing just as fast as these rivals.

Also, it's also worth pointing out that those companies are only measuring their oil production growth rates, not total output, which isn't increasing quite as fast. That difference makes ConocoPhillips' DAS growth rate even more impressive since it's off a much higher starting point. 

A growth stock for a value price

Because most investors don't realize how fast ConocoPhillips is growing, shares are still quite undervalued even after a big run-up over the past year. As a result, its stock remains a good one to consider buying right now.

Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.