Is Archrock Inc. (AROC) the Best GARP Stock to Buy Now?

In the ever-evolving landscape of the energy sector, finding the right stock to invest in can be a daunting task. However, one company that has been making waves recently is Archrock Inc. (AROC). With a strong buy rating and a 12-month stock price forecast that suggests a 4.07% increase, Archrock is certainly worth a closer look. But is it the best GARP (Growth at a Reasonable Price) stock to buy now? Let's dive in and find out.

Understanding Archrock Inc.

Archrock Inc. is an energy infrastructure company that specializes in natural gas compression services. The company operates in two main segments: Contract Operations and Aftermarket Services. With a market cap of $4.24 billion and an enterprise value of $6.54 billion, Archrock is a significant player in the oil and gas equipment and services sector.

Financial Performance

Archrock's financial performance in 2024 was nothing short of impressive. The company reported revenue of $1.16 billion, a 16.89% increase from the previous year. Earnings were $169.95 million, a 64.81% increase. These numbers are a testament to Archrock's strong operational execution and strategic initiatives.

Strategic Initiatives and Acquisitions

One of the key factors driving Archrock's growth is its strategic acquisitions. The recent acquisition of Natural Gas Compression Systems, Inc. (NGCSI) is expected to enhance Archrock's position in the natural gas compression market. This acquisition adds high-quality assets and expands Archrock's service offerings, positioning the company to capitalize on the increasing demand for natural gas compression services.

Another significant acquisition is the TOPS fleet, which has been transformational for Archrock. This acquisition has led to over 40% gains in earnings per share (EPS) in both Q4 2024 and 2025 projections. The TOPS acquisition has also enabled Archrock to raise its dividend for two straight quarters, demonstrating the company's commitment to returning capital to shareholders.

Dividend and Financial Health

Archrock declared a quarterly dividend of $0.19 per share for Q4 2024, a 15% increase compared to the previous year. This dividend increase reflects the company's strong financial health and commitment to returning capital to shareholders. Archrock's leverage ratio improved to 3.3x as of December 31, 2024, down from 3.5x at the end of 2023, indicating a stronger financial position.

Potential Risks and Challenges

While Archrock's financial performance and strategic initiatives are impressive, there are potential risks and challenges that investors should consider. One of the key risks is the significant increase in selling, general, and administrative expenses, which rose from $33 million in Q4 2023 to $42 million in Q4 2024. This suggests potential concerns around cost management.

Another risk is the negative adjusted free cash flow in Q4 2024, which was -$834 million. This signals potential liquidity issues or heavy investments that may not translate into immediate financial gains. Additionally, the company incurred transaction-related costs totaling $13.2 million and a non-cash long-lived and other asset impairment of $10.7 million in 2024, which could impact future profitability.

Conclusion

In conclusion, Archrock Inc. (AROC) is a strong contender for the best GARP stock to buy now. With impressive financial performance, strategic acquisitions, and a commitment to returning capital to shareholders, Archrock is well-positioned to capitalize on the increasing demand for natural gas compression services. However, investors should carefully consider the potential risks and challenges, including increased expenses, transaction-related costs, negative cash flow, market volatility, integration of acquisitions, competitive landscape, and regulatory risks. By factoring these into their decision-making process, investors can make more informed choices and better manage their investment portfolios.