Despite macroeconomic volatility and geopolitical tensions, the Shell (LSE: SHEL) share price has been on a great run of late. Have I missed the boat? Let’s dig deeper and take a look.
As I write, Shell shares are trading for 2,596p. They’re up 10% over a 12-month period, as they were trading for 2,342p at this time last year. Around a month ago, they hit an all-time high of 2,772p.
I reckon a combination of positive factors have pushed up the shares. To start with, the unfortunate invasion of Ukraine back in 2022 prompted sanctions against Russia, one of the largest oil producers in the world. This meant supply levels have been hit hard. When demand stays constant or rises – and supplies fall – the price of most things tends to go up. Furthermore, oil field discoveries continue to boost the energy giant.
My investment case
I want to start by understanding the current valuation of the shares after the Shell share price has done so well. The shares trade on a price-to-earnings ratio of seven. Furthermore, the company looks undervalued compared to major peers in the industry. Saudi Arabian Oil trades at 17 and US rivals ExxonMobil and Chevron trade at 10.1 and 10.6, respectively. When you consider the FTSE 100 average is 14, this looks good to me.
Next, the forecast dividend yield is 4.3%, so I could boost my passive income. Plus, prior to the pandemic, it hadn’t cut dividends since before World War Two! However, I’m aware that dividends are never guaranteed and past performance is not a guarantee of the future.
Recent updates from Shell included the fact that Q3 performance surpassed Q2, which is pleasing to see. In addition to this, a share buyback scheme worth $3.5bn has boosted the shares and could continue to do so.
Away from the positives, oil and gas prices are prone to volatility. The present tragic geopolitical issues have boosted the Shell share price and its performance. However, there’s a chance that performance and its shares could stumble later down the line.
In addition to this, the fact that Saudi Arabia – another of the world’s top oil producers – has voluntarily cut production, inadvertently boosting Shell, is something to bear in mind. If it ramps up production once more, Shell could be impacted negatively.
Finally, despite optimism around discovering new oil fields, they aren’t always a sure thing. Operational and geopolitical issues could hinder any yield Shell hopes to gain from these newfound assets.
I reckon buying Shell shares now could still be a good move. This is why I’ll look to add some to my holdings the next time I have some spare cash.
Despite the shares taking off, they still look undervalued, in my eyes. Plus, boosted performance of late, coupled with positive external sentiment — as well as growth aspirations — make a positive investment case for me.
I’d prepare myself for some volatility, which is found with most energy stocks. However, in the longer term, I reckon Shell shares could be a good stock for me to buy.