Down 14%, is Shell’s share price the best FTSE 100 bargain?

Shell shares plummeted in the month of March. But does this mean they’re a good investment for me as I look to build long-term wealth?

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Shell‘s (LSE:SHEL) share price has taken a beating this month.

Since the beginning of March up until the end of last week, the oil supermajor’s shares shed 14% of their value.

Meanwhile, the FTSE 100 index lost around 6% of its value across the same time.

So, is the recent slip in the Shell share price drastic enough for me to consider it one of the best FTSE 100 bargains I could buy right now?

Underwhelming share price performance is explainable

A number of factors account for Shell’s shaky share price performance in March.

First, it’s worth noting that the entire FTSE 100 index has come under pressure as a result of the Credit Suisse crisis.

Standard Chartered, Barclays, Natwest, and Lloyds were among the worst performers.

More importantly, most oil and gas companies have seen their share prices fall in tandem with the continued downward trend in the price of oil.

That said, since the beginning of 2021, Shell shares are up around 50%. That reflects an impressive performance in light of the recent drop.

Are Shell shares now dirt cheap?

As I write, Shell shares trade on a price-to-earnings ratio (P/E) of 6.75. That’s significantly lower than the FTSE index average of approximately 14.5.

Moreover, the company had a bumper 2022, with revenues rocketing 46% to a staggering $381bn.

Performance was fuelled by growth across each of the core business lines with the exception of the relatively small upstream segment.

Combined, these factors suggest to me that Shell shares could be significantly undervalued as we move into April and beyond.

What might the future hold?

While I’m optimistic that Shell’s share price will recover in the long term, I do have a few concerns.

For example, I’m thinking about the potential impact of volatile oil prices on Shell’s share price performance. After all, the company’s fortunes are inextricably linked to the price of oil.

Uncertain demand from China and the fallout from the Russia-Ukraine war look likely to continue to plague oil prices.

Considering this, I think it could be difficult for Shell to replicate its 2022 performance.

Nevertheless, I’m confident that Shell’s ongoing commitment to net zero goes a long way in offsetting this risk over the long term.

If the company can continue to grow its renewables and energy solutions segment effectively (which now makes up almost 14% of group revenues), I think Shell remains well-positioned to develop this into a lucrative core business line.

To illustrate progress, Shell engineered a two-fold expansion in renewable power generation capacity over 2022.

My final verdict

So, even as 2023 looks to be a more challenging year for the company, Shell has plenty of levers it can pull if oil prices slip further.

As such, I think the Shell share price represents one of the best FTSE 100 bargains on the market today.

If I had the cash to spare, I’d buy some shares as part of my long-term strategy to buy and hold undervalued stocks.

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.

Matthew Dumigan 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.

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