Units of Energy Transfer (ET -0.53%) have declined by more than 10% this year. That has the master limited partnership (MLP) trading at an even cheaper level.

However, a low valuation alone does not make a stock a good buy. To determine whether Energy Transfer is a genuine value stock or a potential value trap, it's essential to consider whether its low valuation is justified by underlying challenges or if the market is overlooking something that could fuel a recovery.

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A dirt cheap pipeline stock

Energy Transfer currently expects its earnings to be at or slightly below the lower end of its previously announced guidance range. As a result, the company is now on track to deliver less than 4% earnings growth this year. That's much slower than the 10% compound annual growth rate the company had delivered since 2020. Weaker commodity prices and fewer growth catalysts have contributed to this year's slowdown.

With its unit price slumping, the MLP currently trades at less than 9 times earnings. That's the second-lowest level in its peer group, where the average is closer to 12 times.

There's no discernible reason why the market values Energy Transfer at such a low level compared to its peers, which include MLPs and pipeline corporations in the U.S. and Canada. While MLPs tend to trade at lower valuations compared to corporations because they send Schedule K-1 Federal Tax Forms each year, several MLPs have much higher valuations compared to Energy Transfer.

Another potential value drag tends to be companies with weaker financial profiles. However, that's not a concern with Energy Transfer. It's currently in the strongest financial position in its history, with its leverage ratio now in the lower half of its 4.0-4.5 target range. While some peers have lower leverage ratios, that's a solid target for a midstream company and lower than some of its rivals.

Given all this, we can safely conclude that Energy Transfer simply trades at an attractively low valuation these days.

Multiple potential upside catalysts could boost its value

If there is any factor driving down Energy Transfer's valuation, it's the slowing growth rate this year. However, that's about to change. The MLP is investing $5 billion into growth capital projects in 2025. These include its Nederland Flexport NGL expansion and Hugh Brinson Pipeline. This current expansion wave should enter commercial service by the end of 2026. As a result, the projects should add meaningful incremental earnings over the next two years. This should help lift the share price.

Energy Transfer has a lot more growth on the horizon. It has recently approved several additional expansion projects, led by the $5.3 billion Desert Southeast Expansion project, which it expects to complete by the end of 2029. These projects provide growth visibility into 2030.

Meanwhile, the MLP has many more potential expansion projects under development, including the long-delayed Lake Charles LNG project. Earlier this year, the company secured a joint venture partner to help fund the project and a few more commercial customers, putting it on the cusp of finally approving this large-scale natural gas export terminal. Energy Transfer is also working on several potential projects to increase its natural gas transportation capacity to support growing power demand from AI data centers. Approving additional growth projects would further enhance the company's long-term outlook, which could help boost its valuation.

Another potential major growth catalyst is an acquisition. Energy Transfer has a long history of consolidating the energy midstream sector, typically completing at least one multibillion-dollar acquisition each year. While it hasn't made a deal this year, it has the financial strength to strike when the right opportunity arises. Securing a needle-moving acquisition could also give its unit price a nice boost.

A compelling investment opportunity

Energy Transfer is very cheap these days. While its growth rate has slowed this year, it should reaccelerate in 2026 as its current wave of expansion projects starts entering commercial service. Meanwhile, the company has more growth potential beyond that, from approving new expansion projects and making additional acquisitions. With its valuation attractive and ample upside catalysts ahead, Energy Transfer looks like a compelling investment opportunity right now.