BP (LSE:BP) shares have sunk in the past couple of months, but the fall is nothing compared with what happened when the pandemic struck and the UK went into lockdown.
BP shares fell almost 50% at the start of 2020, reaching £2.51 on 20 March when the government announced strict measures to reduce social contact.
So what if I’d invested £1,000 in BP shares on 20 March 2020? Well, today I’d have £1,892 as the stock is up 89.2% since then. Moreover, I’d have received close to £150 in the form of dividends, taking my total returns above 100%.
That’s a phenomenal return. However, I appreciate it’s very hard to make decisions in those moments. I remembering having the same ‘should I, shouldn’t I’ discussion.
After all, crude oil prices turned negative that year for the first time in history as traders struggled to shift stock amid plummeting demand. Some thought oil would never recover.
Never an easy decision
There’s rarely been an occasion in which I found an investment decision easy. There’s no certainties, even when the valuation metrics look particularly exciting.
While I can note several occasions on which I’ve made the right call, such as investing in Burberry early in the pandemic and investing in the Bank of Georgia and TBC Bank following Russia’s invasion of Ukraine… I’ve also made as many mistakes.
So with BP shares dipping 10% over the last month, am I looking at a buying opportunity?
Valuation
BP has the most favourable valuation metrics versus the rest of the Big Six, trading at 4.2 times TTM (Trailing 12 Months) earnings and 5.7 times forward earnings. From that perspective, it’s better value than Chevron, Eni, ExxonMobil, Shell, and Total.
Even when we take into account its higher debt burden, BP looks good value. Enterprise value (EV) includes in its calculation the market-cap of a company but also short- and long-term debt and any cash on the company’s balance sheet.
So when we look at the forward EV-to-EBITDA, BP once again comes out on top, with a ratio of just 3.3 times.
It’s also not a bad performer when we look at net income margins. BP comes out in third, behind its American peers, but above its European counterparts at 11.3%.
The buy case
Analysts are increasing bullish on long-term oil prices given the slow moving green revolution and limited global supply of black gold. In fact, BP’s own forecasts suggest oil prices will be $10 higher on average over the next decade versus the previous decade.
I don’t doubt that a global economic slowdown might hurt BP and the share price. As such, I may look for a better entry point or practice pound-cost-averaging in an effort to reduce risk. Nonetheless, I find BP an attractive investment opportunity right now.
The post If I’d put £1,000 in BP shares at the start of the pandemic, here’s what I’d have now appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
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
How many BP shares need I buy to give up work and live off the income?
Down 15%, the BP share price looks crazy to me!
If I’d put £10k in BP shares 5 years ago, here’s how much I’d have today
5.4% yield! Here’s the dividend forecast for BP shares for the next THREE years
Better buy: Shell or BP shares?
James Fox has positions in Burberry Group Plc. The Motley Fool UK has recommended Burberry Group Plc. 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.
