The BP share price is up 80% in a year. Am I too late to buy?

The BP share price has soared by over 80% in the past 12 months. With the oil price still rising, is it too late to climb aboard the BP bandwagon?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

BP (LSE: BP) is one of the FTSE 100 index’s biggest players. Indeed, with a market value of £72.3bn, BP is the Footsie’s seventh-largest company. The BP share price had a terrible run from September 2018 until October 2020. However, BP shares have come roaring back with a vengeance over the past year.

The BP share price collapses

Three years ago, the BP share price was riding high. On 28 September 2018, the stock closed at 589.3p — a mark it’s never been near since. Over the next two years, BP shares headed slowly south, ending 2019 at 471.6p. Then, as Covid-19 infections spread worldwide, countries locked down their populations. As a result, energy demand plummeted — and so too did the oil price.

On 22 April 2020, the price of a barrel of Brent Crude oil crashed to below $16. At this level, BP’s profits would be wiped out, so the shares collapsed. Just over a year ago, on 28 October 2020, the stock reached an intra-day low of 188.52p, down three-fifths (60%) in 2020. But then ‘Vaccine Monday’ (7 November 2020) arrived, with news of effective Covid-19 vaccines. Hence, BP shares shot up like a rocket and have hardly looked back since.

BP is up 80% in 12 months

Today, Brent Crude sells for $86.32 a barrel. That’s more than five times (+439.5%) the low it hit in April 2020. Happily, BP has gone from being a basket case to being an enormous cash cow once again. As I write, BP stock hovers around 361.25p, close to double (+91.6%) its 2020 low. That’s a fantastic return from a ‘big, boring’ FTSE 100 stock (and excludes BP’s cash dividends). For the record, BP stock is up 9% over one month, 23.7% over three months, and 21.8% over six months. Even better, it has skyrocketed by 80.6% over one year. Then again, it’s actually down more than a quarter (-26.6%) over five years. So buying BP in 2020-21 was a wise move, but the shares have been a longer-term disappointment.

Would I buy BP after its strong surge?

On the very day that BP shares hit their generational low (28 October 2020), I wrote, “I believe it’s time…to bite the bullet and buy big” when the stock was 193.44p. That turned out to be a fantastic call. Over the past year, BP shares have thrashed the wider FTSE 100 (up by 24.8%, excluding dividends). But after such a strong and sustained rise in the BP share price, has this mega-cap stock gone too far, too fast?

One thing is obvious: if the oil price remains higher or keeps rising, then BP will make money hand over fist. But if Covid-19 makes a comeback or keeps mutating, then BP’s earnings, profits, and cash flow might decline once more. Then again, BP has been in existence since 1908, so it has survived 113 years of global troubles and bounced back every time. But BP is an old-economy business selling highly polluting fossil fuels. Hence, this ‘sin stock’ must pivot — and turn its tanker around — for the coming age of green energy.

Right now, BP shares trade on a price-to-earnings ratio of 11.6 and an earnings yield of 8.6%. Also, the stock offers an attractive dividend yield of 4.3% a year, slightly above the FTSE 100’s 4%. I don’t own BP shares, but I’d tentatively buy today. Why? Because these fundamentals still don’t look too expensive to me as a veteran value investor!

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.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »