Shell’s (LSE: SHEL) share price continues to be underpinned by one of the strongest cash‑generation engines in global energy. And its highly robust balance sheet, asset base and capital‑discipline profile put it firmly in the top tier of ‘Big Oil’.
Moreover, its 2025 results show a business still capable of throwing off enormous free cash flow even in a relatively low oil price environment, as it was in 2025. All this underlines that the strategic pivot presented by CEO Wael Sawan last March is working well.
Despite this, I think there is a gap between the firm’s price and ‘fair value’, from which long-term investors might benefit. So, how much is it exactly?
Strong growth momentum
Shell’s share price will ultimately be powered by earnings growth, as with all firms. A big risk here is any prolonged period of bearish oil and gas pricing. However, consensus analysts’ forecasts are that its earnings will grow by an average of 7% a year to end-2028.
This looks well supported by its recent full-year 2025 results, which align with the strategic pivot unveiled last March. It centred on tighter capital discipline and a sharper focus on high‑return liquefied natural gas (LNG) and upstream assets.
Income attributable to shareholders rose 11% year on year to $17.8bn (£13.3bn), highlighting enhanced capital discipline and improved marketing margins. At the same time, underlying operating expenses fell 2% to $35.032bn,illustrating the impact of Shell’s simplification and cost‑reduction programme.
Meanwhile, LNG sales volumes increased 11% to 72.94m tonnes, underlining the strength of Shell’s trading and optimisation capabilities. New high‑return LNG and upstream developments also progressed in 2025, strengthening the long‑term production base that underpins future earnings momentum.
This included approval of the Gorgon Stage 3 development in Australia, adding long-life LNG volumes to the already growing portfolio.
Taken together, these trends suggest Shell’s streamlined portfolio and disciplined strategy are well-positioned to support sustained earnings growth ahead.
How undervalued is the stock?
Price is not the same thing as value in stocks. The former is whatever the market will pay at any point, while the latter reflects the underlying business’s fundamentals.
It is in the gap between the two that long-term investors can make serious profits over time. This is because asset prices (including shares) can converge to their ‘fair value’ over the long run.
The method of establishing any stock’s fair value is discounted cash flow analysis. This identifies where any stock should trade by projecting future cash flows and ‘discounting’ them back to today.
Some analysts’ DCF modelling is more conservative than mine, depending on the inputs used. However, based on my DCF assumptions — including a 7.6% discount rate — Shell shares are 26% undervalued at their current £33.64 price.
That suggests a fair value for the shares of around £45.46. So that gap suggests a potentially superb buying opportunity to consider today if those DCF assumptions prove accurate.
My investment view
Shell’s combination of disciplined strategy, world‑class cash generation and a clear valuation gap makes the stock a compelling prospect for me. As such, I will add to my holding soon.
I am also eyeing other even more deeply discounted, high-growth FTSE stocks.
