Over the past five years, BP (LSE: BP) shares have performed well. The share price has grown 61% during that timeframe, yet still offers a juicy 5.5% dividend yield.
The past year though has seen the Shell share go nowhere fast. The price is now 1% lower than it was 12 months ago.
Recent years have brought management and strategic changes at the oil major. So could now be a good time to buy some BP shares for my portfolio?
Energy prices remain a critical factor
As ever, one of the most important elements in driving the BP share price up or down – perhaps the most important factor – will be what happens to energy prices over the next several years. Weak consumer and industrial demand is a risk to energy prices over the coming years.
However, there are also a number of factors that could help support oil prices even if demand slips. They include geopolitical tensions and disruptions to traditional shipping routes.
BP’s been in a strategic muddle
But the same factors apply to other energy companies too. The 61% growth in the BP share price over the past five years looks good, but London-listed rival Shell has soared 145% during the same period.
Across the pond, Exxon Mobil has done even better, growing 174% in the past five years. ConocoPhillips is up 153%, while Chevron’s more modest 84% share price gain during that period still comfortably outstrips BP’s performance.
Why has BP lagged leading rivals when it comes to its share price? Unlike some of them, such as Exxon Mobil with its staggering history of annual dividend per share growth, BP cut its dividend per share five years ago. But so did Shell — and its shares have still far outperformed BP’s.
I think BP’s strategic muddle, planning a bigger focus on non-fossil fuels than many rivals before scaling back its ambition, are largely to blame.
While its strategy is now clearer than it was during recent years, it continues to be less oil-focused than many Stateside rivals (or even Shell). But for now at least, the business model for renewable energy remains less proven than for fossil fuels.
A possible opportunity
On one hand, I think long-term underperformance could help the BP investment case. It could suggest more room for growth if BP’s current strategic focus works out for the best.
Still, the current market capitalisation of £68bn is not small. Last year’s net profit was less than £300m (at current exchange rates). So the business does not look anything like a bargain on that basis. Energy company profits do tend to be highly volatile though, just like the oil and gas prices that drive them.
For the BP share price to grow strongly, I think either the oil price will need to grow steeply (in which case rivals’ share prices could also benefit) or BP’s strategic refocus starts showing meaningful results to the long-term profitability outlook.
Either could happen – but for now I see no rush to invest. I will keep an eye on the BP share price as well as its business performance, but have no plans to buy at the moment.
