BP shares have risen 36% over the last year. Are they worth buying today?

BP shares have been an excellent investment over the last year. But can they keep rising? Here’s Edward Sheldon’s take.

| 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.

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

Image source: Getty Images

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.) shares have had a stellar run recently. Over the last year, they’ve climbed from 392p to 532p – a gain of around 36%.

Are they worth buying today? Let’s discuss.

Swimming in cash

There’s a lot to like about BP right now, to my mind. The company has momentum, for a start.

This is illustrated by its recent full-year 2022 results. For the 12 months, the oil giant posted an underlying replacement cost profit of $27.7bn versus $12.8bn a year earlier.

Surplus cash flow was $19.3bn, compared to $6.3bn in 2021. So the company is currently swimming in cash.

10% dividend increase

Secondly, the group is returning a significant amount of this cash to shareholders. For 2022, the energy giant declared a dividend of 24.08 cents per share, up 10% year on year. That equates to a yield of around 3.7% at the current share price.

It also announced a further $2.75bn share buyback. Buybacks tend to boost earnings per share over time.

We are delivering for our shareholders – with buybacks and a growing dividend. This is exactly what we said we would do and will continue to do – performing while transforming.

BP 2022 results

Stronger balance sheet

Third, its balance sheet is now much healthier than it was previously. Last year, the group was able to pay off a huge amount of debt. It ended the year with net debt of $21.4bn, compared to $30.6bn a year earlier.

Low valuation

Finally, the company’s valuation is still low. With analysts expecting BP to generate earnings per share of $1.01 this year, the forward-looking price-to-earnings (P/E) ratio is just 6.5. At that valuation, I see room for share price appreciation.

It’s worth noting here that analysts at Credit Suisse just raised their target price for BP shares to 630p, from 550p. That’s nearly 20% above the current share price.

Oil price uncertainty

Of course, the big risk here in the near term is oil prices, as these have a major impact on BP’s profits (and share price).

It’s hard to know where they’ll go from current levels. Recently, oil prices have moved higher after OPEC+ announced it would cut production.

But they could easily fall from here if economic conditions continue to weaken. And a significant fall in the price of oil would most likely hit the BP share price.

Looking further out, the firm’s shift to renewable energy is another risk to consider.

The aim is to become a clean energy company and the shift from fossil fuels to clean energy won’t be easy. There’s no guarantee it will be successful.

My view

Overall though, I think the shares look attractive today and I think they go higher from here. That said, there are probably a few other stocks I’d snap up before BP.

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.

Edward Sheldon 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

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Here’s why I think the Lloyds share price could hit a 5-year high in 2024

It's up 13.5% so far in 2024, and reaching new highs. But where might the Lloyds Bank share price go…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

If I’d put £15k into this FTSE 250 stock in 2008, I’d have over £1.26m today

This multi-billion-pound business has created plenty of millionaires over the last 16 years, but can it repeat this performance?

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

3 dividend shares I’ve bought for the next decade!

I think these UK dividend shares can amplify my long-term passive income, and could even be on track to becoming…

Read more »

Investing Articles

If I’d put £5,000 in Scottish Mortgage shares at the start of 2024, here’s what I’d have now

Scottish Mortgage shares have staged a recovery lately, powered by the public and private growth stocks held in the portfolio.

Read more »

Happy couple showing relief at news
Investing Articles

9.9% dividend yield! Is this FTSE 100 stock a brilliant bargain?

This leading British enterprise looks like a delicious deal for passive income, trading at a low multiple while offering a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 tracker fund 5 years ago, here’s what I’d have now

Investing in a FTSE 100 index fund is a terrific way to start building wealth passively with minimum effort. But…

Read more »