BP (LSE:BP), the global oil and gas production firm, is a constituent of the FTSE 100 index and is one of the biggest companies in its industry. With the BP share price currently trading at 430p, I’m wondering if it’s a bargain I shouldn’t miss. As oil prices remain high, should I add this business to my long-term portfolio? Let’s take a closer look.
Strong results and surging oil prices
The company has showed remarkable resilience following the devastation of the pandemic. In March 2020, Brent crude oil fell to under $20 per barrel.
This had a negative impact on the BP share price, because the value of oil was less than the cost of production.
Unsurprisingly, BP slumped to a $24.8bn loss in 2020. The following year, however, it reported a bumper profit of $15.2bn.
This was largely due to surging oil prices following the large-scale reopening of economies after the pandemic. Furthermore, the conflict in Ukraine has pushed up oil prices too.
At the time of writing, both Brent and WTI crude oil are trading above $110 per barrel.
Between 2020 and 2021, BP revenue also grew from $105.9bn to $157bn.
With investment bank Morgan Stanley forecasting a price of $130 per barrel for Brent crude, it’s possible that this surging oil price trend could continue. This may be positive news for the BP share price.
Why the BP share price may be undervalued
I’ve also suspected that the share price is a bargain at current levels. By referring to price-to-earnings (P/E) ratios, I can better understand if a share price is cheap. P/E ratios are found by dividing the share price by earnings.
BP has a forward P/E ratio (found by dividing the share price by forecast earnings) of 4.95. On its own, this figure doesn’t tell me that much.
When compared with another company in the industry, however, it may indicate if BP is in bargain territory.
Shell, for instance, has a forward P/E ratio of 6.57, higher than BP. This may suggest its UK-listed peer is currently undervalued.
Investment bank Berenberg also recently increased its price target from 450p to 500p. So with the shares at 430p, they may have higher to climb in the future.
Despite this, the firm did sell its stake in Russian energy business Rosneft after the Russian invasion of Ukraine. This led to a $23bn loss when the stake was sold.
There’s also the potential threat of a windfall tax on major oil companies in the UK.
Overall, BP is clearly a major player in the oil and gas industry. It has rebounded quickly from pandemic difficulties and is currently benefiting from consistently high oil prices. This could continue. I’m also attracted by the potential cheapness of the BP share price and I’ll be buying some shares soon.
