Record high for Shell shares: is this the perfect buying opportunity?

As Shell shares hit a new all-time high, our writer explores whether now could be a good time to invest ahead of the group’s green energy transition.

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On Monday, Shell (LSE:SHEL) shares hit a record high of £27.36p. Now that’s a long way off the £9.71p I’d have paid had I bought shares at the height of the pandemic in October 2020.

But as with all market fluctuations, the question on my mind is whether or not this achievement presents a golden opportunity to buy in.

Don’t get me wrong, reaching a new all-time high could be an indication of a company’s strength and potential, making it seem like the perfect buying opportunity. However, it also raises caution since it may be a sign of overvaluation.

A surging share price

Since this time last year, the Shell share price has risen by around 21%.

The group’s record high has been fuelled by a spike in the price of oil. In turn, the oil price rise has been caused by concerns relating to the fallout from the Israel-Hamas conflict.

Oil prices surged as the war broke out and Brent crude has now risen by more than 7% since then to over $90 per barrel. Over the same period, Shell’s share price has also gained around 7%.

But just because a company’s share price has rocketed to new heights, it doesn’t necessarily mean there’s no more growth to come. Indeed, a soaring share price might be a testament to a company’s strong performance and promising future prospects. That said, past performance alone won’t sway me.

The record-high share price indicates positive momentum for Shell. However, to me, it serves as a starting point for more in-depth analysis rather than being a definitive decision-making factor.

Oil price risks

An increase in the price of oil is undoubtedly good news for the group. But it also highlights a fundamental risk when it comes to investing in companies like Shell.

Whichever way you look at it, Shell’s fortunes are closely tied to the price of oil. And this is a reality that potential investors like me should always bear in mind.

Dependency on a single and relatively volatile commodity makes Shell vulnerable to sudden shifts in global economic and political landscapes.

The energy transition

Additionally, environmental concerns and the global push towards renewables pose a serious challenge to Shell’s long-term sustainability.

With the world increasingly focusing on green energy solutions, the oil giant is facing pressure to diversify its portfolio and invest substantially in clean energy technologies.

As such, I think any decision to invest needs to be made on the basis of an evaluation of the company’s efforts in transitioning towards a greener future in the long run.

The good news is that Shell’s strong financial performance will enable it to self-fund huge amounts of organic investment. And this is already well underway.

For example, the group achieved a two-fold expansion in renewable power generation capacity over 2022.

Final verdict

Despite the new all-time high, the oil supermajor trades at a valuation of 8.42 times earnings. This suggests to me that the shares could still present some value. Nonetheless, I would only invest if I was prepared to hold for the long term.

But since I’m confident in Shell’s execution of its renewables roll-out, I’d happily hoover up some shares today if I had any cash to spare.

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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