Shell (LSE:SHEL) shares pushed upwards on Thursday (2 November) after the energy giant reported its Q3 results.
As such, the stock is now up 8% over 12 months, and 9.5% over five years. Predictably, this five-year figure doesn’t tell the whole story.
Shell, like its peers, saw its share price plummet during the pandemic as global fuel demand tanked. So if I had put £1,000 in Shell shares half a decade ago, today those shares would be worth £1,095. That’s not a great return.
However, during those five years I would have received dividends. The company did reduce its dividend in April 2020 for the first time since World War II amid pandemic uncertainties.
Over the period, I expect to have received around £135 in dividends. So my total returns would be around £230, or just short of 5% annually.
That’s not a bad return, but it’s not great either.
What did the earnings say?
Shell reported third-quarter adjusted earnings of $6.2bn and announced a $3.5bn share buyback over the next three months.
The earnings were slightly below the expected $6.48bn, but the healthy buyback drove the stock higher.
While earnings were up from the previous quarter at $5.1bn, they were lower than the same period the previous year — $9.5bn.
Shell attributed the results to strong operational performance, increased oil prices, and improved refining margins.
Additionally, the $3.5bn share buyback brings the total for the second half of the year to $6.5bn, ahead of the initially-announced $5bn. Shell has committed to $23bn of buybacks for the year.
Valuation
So what’s the investment hypothesis for Shell? Is the stock good value?
The table below shows how Shell compares against the other five vertically integrated oil and gas companies — often referred to as IOCs. The data suggest Shell is by no means a standout performer. And on a forward basis, it isn’t significantly cheaper than its peers.
Firstly, when looking at this data, I’d discount Eni immediately. It’s partially owned — and controlled –by the Italian state and, as such, it can operate in the national interest rather than purely for shareholders. This is reflected in its lower asset turnover and net income margin.
Meanwhile, US firms Chevron and ExxonMobil appear more expensive. We can also see they have the lowest debt levels and highest asset turnover ratios and net income margins.
The data suggests Shell is something of a middling performer. However, it’s worth noting that the forward earnings ratio is much cheaper from a non-GAAP (Generally Accepted Accounting Principles) basis — 7.65 times forward earnings. This differential could be attributed to the $23bn of share buybacks.
Taking this into account, Shell could be seen as having one of the most attractive valuations among the ‘Big Six’. As such, I’d certainly consider investing in Shell if I had the capital available.
Shell
BP
Chevron
Eni
ExxonMobil
Total
Market Cap ($)
213.56bn
101.16bn
274.27bn
53.21bn
419.47bn
154.83bn
P/E (TTM)
6.90
6.82
10.46
n.a.
10.12
5.88
P/E (FWD)
10.66
5.75
10.57
11.86
11.47
7.06
P/S (TTM)
0.63
0.47
1.34
0.51
1.25
0.72
Asset Turnover
0.83
0.80
0.84
0.64
0.93
0.71
Net Income Margin
8.09%
11.36%
12.56%
5.14%
11.93%
8.58%
Total Debt to Equity
43.92%
68.08%
13.51%
55.93%
19.88%
49.24%
The post If I’d invested £1,000 in Shell shares 5 years ago, here’s what I’d have now appeared first on The Motley Fool UK.
Should you buy Shell now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Is the Shell share price just getting started?
Which of these FTSE 100 shares is the better bargain this November?
This FTSE 100 company made four times as much money as Tesla last year. Its shares trade at a third of the price
“My best-performing UK stock in 2023 has been…”
Record high for Shell shares: is this the perfect buying opportunity?
James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
