Where will the BP share price go in the next 10 years?

The BP share price hasn’t delivered the best returns over the years, but is that all about to change? Zaven Boyrazian investigates.

| 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.

Light bulb with growing tree.

Image source: Getty Images

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.

As a long-term investor, I often ask myself where I think a stock will be in 10 years. Historically, the BP (LSE:BP) share price hasn’t had the most remarkable run, as I’ve previously explored. But can management change all that moving forward? Let’s explore the bull and bear case for this business and whether I should be considering it for my portfolio.

The bullish view on BP’s share price

Today, BP is still very much a business that generates its income through the extraction, refinement, and sale of oil. That’s not exactly great news for the environment. But the recent surge in oil prices has turned the company into what CEO Bernard Looney, calls a “cash machine”. And it’s a key trait I like to see when evaluating long-term performance capabilities.

As extracting oil from the ground is largely a fixed-cost operation, the rising prices have worked wonders on BP’s profit margins. And consequently, analyst forecasts are estimating net income for 2021 will come in at $12.5bn (£9.23bn) versus $4bn (£2.9bn) in 2019.

What’s more, with the world slowly shifting away from its reliance on fossil fuels, BP has been aggressively investing in a renewable energy portfolio. The plan is to transition the business into a 50GW green energy powerhouse, with 40% of its oil & gas portfolio eliminated by 2030. That’s enough to power roughly 15m homes or around 60% of all UK households.

This is quite an exciting proposal. And if successful, it could send the BP share price to new heights.

Taking a step back

As compelling as BP’s future potential might be. I have some reservations. While the cost of installing and maintaining renewable energy technology is falling each year, the profit margins remain relatively tight compared to oil. Even more so when oil prices are trading above $80 a barrel. In other words, while revenues could surge, profits could actually suffer in the long term because of these increased costs.

But the short and medium-term performance of BP’s margins is also at risk. Like I said before, oil companies have fixed operational costs. That places them at the mercy of fluctuating oil prices, which could take a tumble before BP can complete its transition. Besides profits taking a hit, this may also disrupt management’s strategy. Why? Because the plan is to dispose of oil assets to cover the costs of going green. But if the price of oil drops, these assets will undoubtedly lose a significant chunk of value. Needless to say, that would be bad news for BP’s share price.

The bottom line

All things considered, I remain cautiously optimistic about this firm’s future. There is no shortage of challenges for management to overcome. But suppose the company can fulfil its green energy ambitions. In that case, the BP share price could be trading at a much higher valuation by 2030. Therefore, I am tempted to add some shares to my portfolio today.

Zaven Boyrazian 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

Young Asian woman with head in hands at her desk
Investing Articles

Some of the best FTSE 100 growth stocks have gone mad. Time to snap them up?

Harvey Jones is astonished by the rout in FTSE 100 data and software stocks, as investors panic about the impact…

Read more »

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

8% yield! How to target a £1,600 second income with these 7 ISA stocks

Have £20,000 sitting in a Stocks and Shares ISA? Consider building a diversified portfolio of UK dividend shares for a…

Read more »

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

A once-in-a-decade chance to buy FTSE 100 tech stocks like LSEG, Rightmove, and RELX?

The valuations on a lot of FTSE technology stocks have fallen to multi-year lows. Is there a major investment opportunity…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

Why a volatile stock market is a huge opportunity for investors

When share prices move violently it can be unnerving. But as this happens, investors have a real chance to find…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 52% with a P/E of 7. This value share might not be on offer for much longer

James Beard thinks this FTSE 100 share offers amazing value. That’s why he has it in his Stocks and Shares…

Read more »

Picturesque Cotswold village of Castle Combe, England
Investing Articles

£567 passive income from a £7,000 Stocks and Shares ISA? Here’s how

Here's one FTSE 100 business investors might add to a Stocks and Shares ISA to instantly unlock an 8.1% dividend…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

Why Amazon’s falling share price after strong Q4 earnings could be good news

Amazon’s share price is falling as the prospect of a $200bn spend in 2026 has investors nervous. But Stephen Wright…

Read more »

Older couple walking in park
Investing Articles

How much do I need in my ISA for a £1,000 monthly passive income?

Picking high-income stocks in an ISA can be a route to securing long-term passive income. And here's one with a…

Read more »