This year has been great for FTSE 100 oil biggies like Royal Dutch Shell (LSE: RDSB). Oil prices have gone through the roof, significantly improving their financials after last year’s dismal numbers. Shell’s share price has risen fast over the past year as a result. From last October to now, it has doubled.
Earnings drop for Royal Dutch Shell
I have already bought the stock. But if I had not, I would certainly be asking if it can double my money in another year if I bought it now. On the face of it, that may not appear likely going by its earnings for the third quarter of 2021 having declined from the quarter before, despite oil prices staying firm.
There is good reason for this, though. The company had already flagged a setback to earnings due to Hurricane Ida in the Gulf of Mexico earlier this month. And going by the fact that some forecasters actually expect crude oil prices to touch $100 per barrel next year, the company’s profits could make up for the latest hit in the coming quarters.
Some dividend cheer
For investors like me who may so far have been dissatisfied with Shell’s dividends, there is a small point to cheer as well. Recently, its dividend yield has been small. At around 3%, it is lower than the FTSE 100 average yield of 3.4%. But it has now raised it to 3.5%, which is just above the average yield. I think its dividends could rise even more, going by the fact that the demand for oil is expected to remain firm.
Upside to the Shell share price
Also, after yesterday’s results report, its price-to-earnings (P/E) ratio is at around 16 times according to my quick estimates. This is not particularly high, especially considering that there appears to be a lot of steam in the stock even now. The average FTSE 100 stock trades at a multiple of 20 times. My calculations suggest that for Shell stock to trade at these multiples too, its price would have to rise by around 20% from its present levels.
In fact, according to some analysts, the Royal Dutch Shell share price could increase by as much as 166% in the next 12 months, according to data provided by the Financial Times. If this happens, then the question asked in the title of this article is answered. Not only could an investment in the stock double my money, it could much more than double it!
What can go wrong
But these estimates would be based on current conditions. And considering that we are still living in very uncertain times, it is entirely possible that the forecasts might not be realised. There is much that could still go wrong.
Parts of Asia are seeing rising coronavirus cases. While we have vaccines in place now, we can never be too sure of what happens next. And stock markets have found their mojo once again only in the last couple of weeks after starting weakly in October. So I would not take investor confidence for granted.
What I’d do
At the same time, these forecasts do offer useful guidance. Even with some hiccups, I reckon there is upside to Shell stock. I’d buy it now, if I had not done so already.