BP (LSE: BP) is one of the FTSE 100 index’s biggest players. Indeed, with a market value of £72.3bn, BP is the Footsie’s seventh-largest company. The BP share price had a terrible run from September 2018 until October 2020. However, BP shares have come roaring back with a vengeance over the past year.
The BP share price collapses
Three years ago, the BP share price was riding high. On 28 September 2018, the stock closed at 589.3p — a mark it’s never been near since. Over the next two years, BP shares headed slowly south, ending 2019 at 471.6p. Then, as Covid-19 infections spread worldwide, countries locked down their populations. As a result, energy demand plummeted — and so too did the oil price.
On 22 April 2020, the price of a barrel of Brent Crude oil crashed to below $16. At this level, BP’s profits would be wiped out, so the shares collapsed. Just over a year ago, on 28 October 2020, the stock reached an intra-day low of 188.52p, down three-fifths (60%) in 2020. But then ‘Vaccine Monday’ (7 November 2020) arrived, with news of effective Covid-19 vaccines. Hence, BP shares shot up like a rocket and have hardly looked back since.
BP is up 80% in 12 months
Today, Brent Crude sells for $86.32 a barrel. That’s more than five times (+439.5%) the low it hit in April 2020. Happily, BP has gone from being a basket case to being an enormous cash cow once again. As I write, BP stock hovers around 361.25p, close to double (+91.6%) its 2020 low. That’s a fantastic return from a ‘big, boring’ FTSE 100 stock (and excludes BP’s cash dividends). For the record, BP stock is up 9% over one month, 23.7% over three months, and 21.8% over six months. Even better, it has skyrocketed by 80.6% over one year. Then again, it’s actually down more than a quarter (-26.6%) over five years. So buying BP in 2020-21 was a wise move, but the shares have been a longer-term disappointment.
Would I buy BP after its strong surge?
On the very day that BP shares hit their generational low (28 October 2020), I wrote, “I believe it’s time…to bite the bullet and buy big” when the stock was 193.44p. That turned out to be a fantastic call. Over the past year, BP shares have thrashed the wider FTSE 100 (up by 24.8%, excluding dividends). But after such a strong and sustained rise in the BP share price, has this mega-cap stock gone too far, too fast?
One thing is obvious: if the oil price remains higher or keeps rising, then BP will make money hand over fist. But if Covid-19 makes a comeback or keeps mutating, then BP’s earnings, profits, and cash flow might decline once more. Then again, BP has been in existence since 1908, so it has survived 113 years of global troubles and bounced back every time. But BP is an old-economy business selling highly polluting fossil fuels. Hence, this ‘sin stock’ must pivot — and turn its tanker around — for the coming age of green energy.
Right now, BP shares trade on a price-to-earnings ratio of 11.6 and an earnings yield of 8.6%. Also, the stock offers an attractive dividend yield of 4.3% a year, slightly above the FTSE 100’s 4%. I don’t own BP shares, but I’d tentatively buy today. Why? Because these fundamentals still don’t look too expensive to me as a veteran value investor!
Cliffdarcy 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.
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