UK investors have been piling into BP (LSE: BP.) shares. Last week, BP was the most purchased stock on Hargreaves Lansdown’s platform both by the number and the value of deals.
Is buying the oil stock at the current share price a smart move? Let’s discuss.
The bull case
When I look at BP today, I can see reasons to be bullish and reasons to be bearish. Let’s start with the bull case. One thing to like about the oil stock is that there’s a juicy dividend yield on offer at the moment. Currently, analysts are forecasting a payout of 32.5 cents per share for the 2025 financial year, which translates to a yield of around 7%.
Another positive is the company’s buying back its own shares. In its recent first-quarter results, it announced a buyback of $750m. Buybacks can boost earnings per share over time.
Additionally, the shares trade at a fairly reasonable valuation. Currently, the forward-looking price-to-earnings (P/E) ratio here is only about 10.
Then, there’s talk of an acquisition by rival Shell. According to Bloomberg, Shell’s currently working with advisers to evaluate a potential deal. Nothing’s guaranteed here, but if it did make a bid for BP, its share price could rise.
So overall, there are a few reasons to be bullish.
The bear case
At the same time however, I also see a few issues to be concerned about. In the short term, the outlook for the oil industry and the energy company doesn’t look good. Oil prices have tanked recently and as a result BP’s revenues and profits are down.
In Q1, BP’s sales and other operating revenues fell 4% year on year to $46.91bn. Meanwhile, underlying replacement cost profit (BP’s measure of earnings) per share was 8.75 cents versus 16.24 cents a year earlier – a decline of 46%.
Taking a long-term view, the picture doesn’t look much better since the increasing focus on sustainability is negatively impacting demand for oil. In one International Energy Agency (IEA) scenario, oil demand barely increases between now and 2030.
One issue on the demand side is China. It accounted for roughly half of all global oil demand growth over the past two decades. However, the boom in electric vehicles (EVs) in the country has slowed demand growth to a crawl, and is threatening to destroy it all together.
It’s worth noting here that a few years ago, BP told investors that it had big plans to become a renewable energy company. However, it’s recently ditched this plan and moved its focus back to fossil fuels.
Time will tell whether this was the right move. However, right now, it doesn’t look like a great strategy.
Better shares to buy?
Weighing all this up, my view is that there are better shares to consider buying today. To my mind, there’s too much long-term uncertainty here.
Sure, the dividend yield today looks enticing. However, if the shares continue to fall, overall returns could be disappointing.
