The most common valuation measure for junior oil and gas companies is price to cash flow (stock price/cash flow per share). Here I would encourage you to also use enterprise value to cash flow (market capitalization + debt/cash flow) as a way to take into account the company’s debt burden.

There currently exists a clear distinction in valuation between premium and value companies within the junior oil and gas sector. A typical cash flow multiple for a premium company will be around 6-7 times. These are companies that have previously successful management teams.

The second group of value companies trade at cash-flow multiples in the 3-4 times range. Many of these have either stumbled operationally in the recent past or have management teams that are not as well known. Both types of companies come with a different set of risks and rewards and
both can be good long-term investments.