Electrical motor stator current signals have been widely used to monitor the condition of induction machines and their downstream mechanical equipment. The key technique used for current signal analysis is based on Fourier transform (FT) to extract weak fault sideband components from signals predominated with supply frequency component and its higher order harmonics. However, the FT based method has limitations such as spectral leakage and aliasing, leading to significant errors in estimating the sideband components. Therefore, this paper presents the use of dynamic time warping (DTW) to process the motor current signals for detecting and quantifying common faults in a downstream two-stage reciprocating compressor. DTW is a time domain based method and its algorithm is simple and easy to be embedded into real-time devices. In this study DTW is used to suppress the supply frequency component and highlight the sideband components based on the introduction of a reference signal which has the same frequency component as that of the supply power. Moreover, a sliding window is designed to process the raw signal using DTW frame by frame for effective calculation. Based on the proposed method, the stator current signals measured from the compressor induced with different common faults and under different loads are analysed for fault diagnosis. Results show that DTW based on residual signal analysis through the introduction of a reference signal allows the supply components to be suppressed well so that the fault related sideband components are highlighted for obtaining accurate fault detection and diagnosis results. In particular, the root mean square (RMS) values of the residual signal can indicate the differences between the healthy case and different faults under varying discharge pressures. It provides an effective and easy approach to the analysis of motor current signals for better fault diagnosis of the downstream mechanical equipment of motor drives in the time domain in comparison with conventional FT based methods.