If I’d bought £1k of Centrica shares at the start of 2023, here’s what I’d have now

Centrica shares have continued to absolutely thrash the market and prove our writer wrong. Is he finally ready to buy?

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Generally speaking, few investors like to admit their mistakes. This Fool is different. In fact, I’m more than willing to hold my hands up and say I got Centrica (LSE: CNA) shares all wrong when I last ran the rule over the company.

Bad call

Back in August 2022, I was sceptical that the positive momentum already seen in the British Gas owner’s stock would continue. The threat of a windfall tax on huge profits made as a result of the spike in energy prices made this a risky buy, at least in my opinion.

In my defence, the share price was roughly 15% lower in value only a few weeks later. However, this was not to last.

Since the beginning of 2023, Centrica shares are up 73%. So, I’d have £1,730 now if I’d put £1,000 down as markets opened in January. The FTSE 100 is down 1.5% over the same period.

For simplicity, this doesn’t take into account transaction fees, nor does it include the 3p per share in dividends returned by the company since just over a year ago.

Has my opinion changed?

There are certainly a few things I like about Centrica as it stands.

Trading remains buoyant with the blue-chip reporting half-year adjusted profit of nearly £2.1bn in July — a 55% increase from that achieved a year earlier. A significant proportion came from the British Gas Energy Supply division due to price-cap changes by regulators.

The balance sheet also looks a lot healthier than it did a few years ago. A big net cash position is definitely preferable at a time of rising interest rates.

The resumption of dividends is not something I’m ever going to complain about either. Actually, it’s about as good an indication of business confidence as we can get. For cash to actually be paid out, a company needs to be trading and trading well. Dividends can’t generally be fudged.

Speaking of which, investors no doubt cheered the 33% hike in the interim dividend announced in July.

Stubborn old Fool

The trouble is that I can’t shake the feeling that Centrica shares have overheated.

Yes, a price-to-earnings (P/E) ratio of just five looks remarkably cheap. However, millions of us are still struggling with bills and Ofgem has already warned companies against throwing too much cash at shareholders. I’d rather not own stocks that are under such constraints.

It’s also worth noting that underlying profit will likely be lower in the second half of 2023 due to the seasonality of its markets. Now, any business whose trading depends on something as unpredictable as the weather is not really one I’m running to buy a slice of. Regardless, the next set of numbers may not be quite so electrifying and some traders may head to the exits beforehand.

More generally, I wonder if we could see some profit-taking when the energy market becomes more competitive. Although some smaller suppliers have gone to the wall, British Gas is far from the only option out there for consumers.

So, as great as it would have been to see those recent gains in my portfolio, I’m still a bit wary.

But I’ve been wrong before and I can be wrong again.

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.

Paul Summers 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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