As an investor, the idea of buying a stock at a cheaper price than it is worth is always enticing. This is especially true in the case of BP, a British oil giant whose recent earnings have made the stock look incredibly cheap. The company’s price-to-earnings ratio is currently only 4.5, compared to the FTSE 100’s trailing 12 months P/E ratio of around 14 and the 10-year Footsie average of 19. In this article, we will explore whether BP is a good investment opportunity by analyzing the reasons why the stock looks cheap and whether it is worth buying.
Add to Watchlist: VERSES AI, Ticker VERS
A Bumper Year of Earnings for BP
BP has had a bumper year of earnings, which has contributed to the company’s low price-to-earnings ratio. The company’s recent profits of £28bn in 2022 have been impressive, especially when compared to the previous year’s earnings of £13bn. The main reason for the high earnings figure is the recent boom in oil prices, which peaked at over $120 a barrel. However, it is essential to note that the current price of a barrel of oil is now below $80. This recent dip in oil prices has made many investors wonder if the boom was temporary, making them think twice before investing in BP.
Reasons Why BP Looks Cheap
There are three main reasons why BP looks cheap: it is a sideways stock, the current P/E ratio is based on earnings from the last 12 months, and the company’s future prospects are uncertain.
BP is what some call a sideways stock, meaning that the company’s share price does not go up or down much over long periods. The company’s lack of growth over the last couple of decades makes it a problem for investors to rely on dividend payouts to get a return on their investment. BP’s current dividend yield is 3.92% for the year, which is not awful, but some investors might say it is a mediocre return that could drive the share price down.
A Banner Year
As mentioned earlier, the 2022 profits of £28bn are impressive, but the profits from 2021 were only £13bn. The recent boom in oil prices has contributed to the high earnings figure, but the current price of a barrel of oil is already down to below $80, making many investors wonder if the boom was temporary. Thus, the stock looks extremely cheap only based on the last 12 months, and the P/E ratio at the end of 2021 was 11.8, making the stock seem less of a no-brainer buy.
The Long Term
Oil and gas companies have uncertain future prospects, much like tobacco companies, as the products they sell might become obsolete. BP has shown an interest in future-proof renewables, making a $356m investment in low-carbon projects in the first half of 2022. However, over the same period, it invested $4.5bn in oil and gas projects, which tells us where the focus of the firm is. Even if the stock does look cheap, there are concerns about what the share price would do over the long term.
Should I Buy BP Shares?
After analyzing the reasons why BP looks cheap and its future prospects, the answer is not straightforward. The company’s recent earnings make the stock look astoundingly cheap, but it is vital to consider the long-term prospects based on the factors discussed, it is uncertain whether BP is a good investment opportunity. While the current P/E ratio of 4.5 makes the stock look cheap compared to the FTSE 100, the recent dip in oil prices and the uncertain future of the oil and gas industry raises concerns about the stock’s long-term prospects. Additionally, BP’s significant investments in oil and gas projects compared to its low investment in renewables further highlights the company’s focus on traditional energy sources.
Therefore, it would be wise to carefully evaluate the risks and rewards of investing in BP. Investors should consider the company’s long-term prospects, its current dividend yield, and the potential volatility in oil prices before making a decision.
BP’s current price-to-earnings ratio of 4.5 makes the stock look cheap compared to the FTSE 100. However, the recent dip in oil prices and the company’s significant investments in oil and gas projects raise concerns about the stock’s long-term prospects. As a result, it would be wise to carefully evaluate the risks and rewards of investing in BP before making a decision.
- Is BP a good investment opportunity?
- It is uncertain whether BP is a good investment opportunity. Investors should consider the company’s long-term prospects, its current dividend yield, and the potential volatility in oil prices before making a decision.
- What is BP’s current P/E ratio?
- BP’s current P/E ratio is 4.5.
- Why is BP considered a sideways stock?
- BP is considered a sideways stock because the company’s share price does not go up or down much over long periods.
- What is BP’s dividend yield?
- BP’s current dividend yield is 3.92% for the year.
- What has BP invested in recently?
- BP has invested $356m in low-carbon projects in the first half of 2022 and $4.5bn in oil and gas projects over the same period.
Please note that the information provided in this article is for informational purposes only and should not be considered as investment advice. Any investment decisions you make are solely your own responsibility. Furthermore, please be aware that investing in stocks always carries a degree of risk, and you should carefully consider your financial situation and investment objectives before making any investment decisions. We do not guarantee the accuracy, completeness, or reliability of the information provided in this article. Therefore, we disclaim all liability for any financial losses that may result from the use of this information.