Is There Still Time To Buy BP plc?

Can BP plc (LON: BP) move higher, or are the company’s shares overvalued?

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Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today, I’m looking at BP (LSE: BP) (NYSE: BP.US) to ascertain if its share price has the potential to push higher.

Current market sentiment

The best place to start assessing whether or not BP’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.

BPAt present, it would appear that the market’s opinion towards BP is somewhat mixed. Indeed, on one hand, investors are still concerned about the final outcome of legal proceedings relating to the Gulf of Mexico disaster.

But on the other hand, investors appear to be pleased with BP’s plans for growth, which include the start-up of several major projects during the past year. In addition, BP continues to return billions to shareholders through both buybacks and dividends — great news for many investors. 

Upcoming catalysts

Aside from issues relating to the Gulf of Mexico disaster, there are two upcoming catalysts for BP in the near future. Firstly, during 2014 the company is planning to bring seven new oil projects on stream, three of which have already started production. Additionally, BP currently has ten projects slated to commence production between now and 2017.

Secondly, BP is currently in the process of divesting up to $10bn worth of non-core assets and the company has stated that the cash from these disposals will be distributed to investors, “with a bias to share buybacks”.  

Nevertheless, the Macondo disaster still haunts BP and the company has so far paid out $41.7bn in compensation and legal fees relating to the incident. Unfortunately, any further legal proceedings, or costs relating to this ongoing saga will be a negative catalyst for BP’s shares, although the company seems to have provisioned for the majority of claims relating to the incident. 

Valuation

With the Gulf of Mexico disaster still hanging over BP, the company’s shares look cheap when compared to largest London-listed peer, Royal Dutch Shell.

In particular, BP’s shares currently trade at a forward P/E of 9.7, while Shell trades at historic P/E of 11.3. Actually, including BP’s share in Russian oil giant Rosneft, based on the volume of oil produced, BP is actually larger company, so it is reasonable to assume the BP should command a premium over Shell.

Foolish summary

So overall, based on BP’s production growth and low valuation I feel that there is still time to buy BP.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert does not own any share mentioned within this article. 

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