AROC

We rate Archrock, Inc. (AROC) as a Hold with a composite score of 50.5/100 at a current price of $36.12. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in momentum (57th percentile) and stability (51th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (22th percentile) and value (49th percentile) tempers our overall conviction. We assign a No Moat rating (33/100), High uncertainty, and Standard capital allocation.

Key items to watch: balance sheet deleveraging progress; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Archrock, Inc. holds a top-quartile position (#0 of 50) within the Transportation, Communications, Electric, Gas, And Sanitary Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 50.5/100 places it at rank #1939 in our full 7,333-stock universe. At $4.6B in market capitalization, Archrock, Inc. is a mid-cap player in the Transportation, Communications, Electric, Gas, And Sanitary Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 41%, though momentum at the 57th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 53% (-2.2pp vs sector) narrow to operating margins of 27% (+9.1pp vs sector) and net margins of 17.1%, yielding a gross-to-net conversion rate of 32%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $36.12, Archrock, Inc. is trading near fair value based on current fundamentals. Our value factor score of 49/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 23.7x (a 40% premium to the sector median of 16.9x), EV/EBITDA of 18.6x (at a premium), P/B of 4.0x, P/S of 4.1x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to Archrock, Inc.. Key risk factors include significant leverage (180% debt-to-equity). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (180% debt-to-equity). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 51th percentile and quality factor at the 50th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 53% provide a buffer against cost pressures; a 2.91% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Archrock, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 17.1%, and the balance sheet is managed within acceptable parameters (D/E: 180%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; Archrock, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 2.91% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, Archrock, Inc. receives a Hold rating with a composite score of 50.5/100 (rank #1939 of 7,333). Our quantitative framework assigns a No Moat (33/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 46/100.

Our analysis supports a neutral stance on Archrock, Inc.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.