The BP (LSE:BP.) share price has been on a bit of a downward trajectory of late. Since July last year, the oil & gas giant has actually seen close to 20% of its market capitalisation wiped out. And while dividends have helped soften the blow, shareholders are still falling behind the FTSE 100.
However, 12 months is hardly enough time to judge the performance of an investment. So what if we zoom out to a more reasonable timeline of five years? Have BP shares delivered a better performance? And should this energy titan be on investors’ radar in 2025?
BP performance
Let’s say it’s July 2020. The stock market has recently bounced back from the short-lived Covid crash, and in a spur of optimism, an investor decides to buy £1,000 worth of BP shares.
As manufacturing ramps back up and a war breaks out in Eastern Europe, oil & gas prices surge. BP continues to publish a steady stream of trading updates reporting skyrocketing profits – news that even makes it into the Houses of Parliament. And by February of 2023, that initial £1,000 investment is now worth close to £2,000 – a 100% return.
Unfortunately, throughout the rest of 2023, energy supply chains adapted, and energy prices began a downward trend. At the same time, the British government began introducing a windfall tax on oil & gas companies.
Combine these political and commodity headwinds with higher interest rates, and we arrive at the reason why BP shares have underperformed since 2024. The result? The initial £1,000 is back down to only around £1,300 – the equivalent of a 5.5% annualised return.
Still an interesting opportunity?
A 5.5% average return is far from terrible. Still, it’s hardly anything to get excited about compared to what some other businesses have achieved over the same period. Regardless, is there still a compelling investment opportunity here?
The analyst team at JPMorgan certainly seem to think so, given they recently raised their share price target from 440p to 510p. If this projection proves accurate, BP shares could be about to climb 35% in the next 12 months. So what’s driving this optimistic outlook?
JP Morgan’s bullish stance is less about the state of the energy industry and more about BP’s continued stake in Rosneft – a Russian oil & gas leader.
While this investment has lost a large chunk of its value since the start of the Ukrainian war, that could quickly change in the event of a ceasefire. And that gives management some options. For example, if it decides to sell off its stake post recovery, the proceeds would be able to significantly deleverage the balance sheet as well as fund future exploration efforts.
However, JP Morgan isn’t blind to the threats. BP’s still highly sensitive to fluctuating energy prices. And with concerns over a potential recession in key markets like the US, the downward trend of 2024 could be set to continue. At the same time, pressure from activist investors has started to ramp back up again, especially since the firm’s U-turn on many of its renewable energy ambitions.
With that in mind, while there’s a lot to like here, I think there are far better opportunities to be had elsewhere. So I’m not rushing to buy BP shares today.
