If I’d invested £3k in Centrica shares 3 years ago here’s what I’d have today

Centrica shares have smashed the FTSE 100 performance norm in recent years, and they’re still climbing. But is there a danger of burnout?

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Buying Centrica (LSE: CNA) shares has been one of the best investment decisions of the last few years. Its share price performance chart is almost unique for a FTSE 100 stock, showing an uninterrupted upwards sweep since the start of 2020. 

The trend began with Russia’s invasion of Ukraine and the energy shock, and has carried on almost unchecked. Yet two things would make me think very hard before buying the British Gas owner’s shares today. 

Up, up and away

The first is that I’m always wary of coming to the party late, missing the fun but catching the hangover. I prefer to target cheap, out-of-favour shares. The second is that the share price chart seems to be spiking, which often happens in the late stages of a rally.

Centrica is up 5.8% in the last week and 20.5% over one month. Over one year, it’s up 113.54%. If I’d invested £3,000 three years ago, I’d be ecstatic. My money would have grown 303.98% to £12,119, minus trading charges. That’s a fabulous return but no guide to what’s going to happen next.

But I could be wrong to be so cautious. Trading at around 173p a share, Centrica is still way below its all-time high of almost 400p, which it brushed in September 2013. This suggests its shares have scope for further growth, as they’re still making up lost ground. They still look astonishingly cheap too, trading at just 5.8 times forecast earnings for 2023. This rally could have further to run.

Centrica is also a gas and oil producer, and even though it’s planning a low-carbon shift, it has still benefited from the latest oil price spike as Saudi Arabia’s production cuts drive Brent crude towards $100 a barrel.

Investors have also been encouraged by July’s first-half results, which showed pre-tax operating profit jumping from £1.3bn to £2.1bn. Statutory operating profits turned last year’s £1.1bn loss into a £6.5bn gain. 

A key thing is stopping me

Changes to the energy cap boosted British Gas Energy, whose profits soared 889% to £969m. However, that was a one-off, and the board doesn’t anticipate a repeat. That didn’t worry investors, who were too busy celebrating an interim dividend increase from 1p a share to 1.33p, and an extended share buyback programme, up £450m to £1bn.

In 2020, Centrica had net debt of £3bn. Today it holds net cash of around £2.4bn, which is quite a turnaround. I’m trying to find something to dislike about the stock, but I’m struggling. I suppose the yield is low for an energy producer, forecast to be just 2.34% in 2023, but that’s expected to edge up to 2.67% in 2024.

Yet another worry is that while revenues are expected to jump from £23.74bn in 2022 to £28.49bn in 2023, the growth won’t last. Markets expect a dip in 2024 to £25.99bn.

Energy prices are cyclical. If Saudi eases up on production cuts or the world slips into recession, Centrica shares may give up some of their gains. Or at least, grow more slowly.

Today, though, they’re on fire yet I still think I’ve left it too late to buy them. Instead, I’ll carry on hunting for shares the market hates. There are plenty to choose from today.

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.

Harvey Jones 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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