I noticed that the BP (LSE: BP.) share price has rallied in the past couple of months. Furthermore, the shares still look cheap to me on paper. Let’s dig a bit deeper to help me decide if I should buy some of the shares for my holdings.
Recent BP share price journey
As I write, BP shares are trading for 541p. Over a 12-month period, they’re up 24%, as they were trading for 435p at this time last year. The shares climbed as high as 567p in February 2023. When macroeconomic volatility began impacting markets, the shares fell. More recently, the BP share price has risen 18% since the beginning of July, from 458p to current levels.
I’m buoyed by BP’s recent share price performance. I want to understand more about what’s happening at the oil giant to help me make an investment decision.
Valuation, dividends, performance, and risks
Looking at BP’s valuation, it looks favourable to me right now on a price-to-earnings ratio of just six. This is cheap compared to industry peers, which is something I review carefully when looking to buy any stock. Shell shares trade on a ratio of over seven, and TotalEnergies trade on a ratio over eight, to mention a couple.
Next, BP shares would boost my passive income stream through dividends. At present, a dividend yield of just over 4% is slightly over the FTSE 100 average of 3.9% currently. In other good news, dividend forecasts for the next two years indicate this could rise. However, I do understand projections don’t always come to fruition and dividends are never guaranteed.
Moving on, the current oil market is a burgeoning one. This is one of the reasons I think the BP share has rallied. The price of oil per barrel is at the highest levels since last winter. I believe this has been helped by major oil producers and exporters Saudi Arabia and Russia producing and exporting less. When supply lessens and demand remains constant or increases, the price of any commodity tends to rise.
From a risk perspective, BP shares and its performance could be impacted if the current oil price were to drop. There is every chance of this so I’ll be keeping a close eye on developments.
Another issue that could impact the BP share price is the lobbying by anti-oil groups and the rising sentiment against fossil fuels. Furthermore, the green revolution and rise in renewable energy alternatives have the ability to impact BP adversely. However, I view this as a longer-term risk.
What I’m doing now
Taking everything into account, I like the look of BP shares. I must note that the recent change in leadership slowed down the BP share price charge slightly. CEO Bernard Looney resigned on 12 September.
I’d be willing to buy some BP shares the next time I have some spare cash to invest. Positive market sentiment, an enticing valuation, and the passive income opportunity helped me make my decision.
