Under £25 now, Shell’s share price looks cheap to me anywhere below £66.43!

Shell’s share price has fallen a lot recently, but this may indicate a bargain to be had. I took a deep dive into the business to see if this is true.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Person holding magnifying glass over important document, reading the small print

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Shell’s (LSE: SHEL) share price has dropped 17% from its 13 May 12-month traded high of £29.56.

Such a fall could flag that a company is fundamentally worth less than it was before. Or it may signal a bargain-buying opportunity to be had.

To find out which it is here, I ran the key numbers and looked more closely at the business.

Should you invest £1,000 in Shell right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Shell made the list?

See the 6 stocks

How does the business look?

Its Q1 results on 2 May, which showed adjusted earnings of $5.6bn (£4.22bn). This was 27% lower than Q1 2024’s $7.7bn, largely reflecting the drop in the benchmark oil price over the period. However, it did beat consensus analysts’ forecasts for $4.96bn.

Positive as well was the announcement of another share buyback, which tends to support long-term stock price rises. This will be for $3.5bn of shares over the next three months. It marks the 14th consecutive quarter of share buybacks for the firm, each worth at least $3bn.

The firm also highlighted the completion of its Pavilion Energy acquisition. This will add significant new liquefied natural gas (LNG) business to Shell, as well as extra regasification capacity and shipping assets.

Shell is already a leader in the LNG field, which it forecasts will see a 60% increase in demand by 2040. But it plans to increase its sales of the gas by 4%-5% — and production by 1% — a year in the next five years.

A risk here is that this growth does not occur as predicted. Another is that oil and natural gas prices remain bearish for an extended period.

However, analysts forecast that Shell’s earnings will grow 10.3% a year to the end of 2027. Ultimately, increases here power a firm’s share price (and dividends) over time.

How does the share price look?

Shell looks very undervalued at its 0.7 price-to-sales ratio compared to its competitors’ average of 2.2. The firms are Chevron at 1.2, ExxonMobil at 1.3, ConocoPhillips at 2, and Saudi Aramco at 3.3.

It also looks undervalued on its price-to-book ratio of 1.1 against its peer group average of 2.3.

To pinpoint what these mean for its share price, I ran a discounted cash flow (DCF) analysis. This shows Shell is 63% undervalued at its present price of £24.90.

Therefore, the fair value for the shares is £66.43, although market forces could move them lower or higher.

Created with Highcharts 11.4.3Shell Plc PriceZoom1M3M6MYTD1Y5Y10YALL12 May 202012 May 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '252021202120222022202320232024202420252025www.fool.co.uk

Will I buy the shares?

I already have shares in Shell, based on its strong earnings growth potential. I also think that many investors do not appreciate a couple of key facts about the energy transition.

The first is that Shell will play a key part in that move from fossil fuels to cleaner energy.

The second is that this transition is likely to take a lot longer than commonly thought. President Donald Trump has started the process to withdraw the US from the Paris Agreement on climate change. Meanwhile, China aims to achieve net zero only by 2060 and India by 2070.

Given that these factors are still in play, I will buy more Shell shares very soon.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Simon Watkins has positions in Shell Plc. 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.

More on Investing Articles

Abstract bull climbing indicators on stock chart
Investing Articles

Could the Chancellor’s Leeds Reforms trigger a bull market for UK stocks?

More competitive lending and greater interest in shares could help kick start growth for UK businesses. But could it also…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I think this AI stock could double before Palantir

Palantir stock is up almost 100% this year. As a result, it now sports a market cap of $350bn meaning…

Read more »

Elevated view over city of London skyline
Investing Articles

As the FTSE 100 hits an all-time high, is it time to reconsider the S&P 500?

Christopher Ruane explains why a surging FTSE 100 has not yet made him focus more on the potential of S&P…

Read more »

GSK scientist holding lab syringe
Investing Articles

The FTSE 100 sits at a record high. But some stocks still look dirt cheap!

The usually sluggish FTSE 100 is having a surprisingly good year. But our writer feels there are still potential bargains…

Read more »

Close-up of British bank notes
Investing Articles

With a £20k Stocks and Shares ISA, here are 3 ways an investor could target a £2k annual passive income

Our writer thinks there is more than one way to try and skin a cat when it comes to earning…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Up 350% in 3 years but my favourite FTSE growth share is still on a low P/E of just 10!

Harvey Jones can't tear his eyes away from this former penny stock turned growth share superpower. But can it carry…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

Up 83% in months, could Micron stock be the next Nvidia?

Chipmaker Micron Technology's stock price has surged by over 80% in just a few months. Could this be a possible…

Read more »

Tesla car at super charger station
US Stock

£1k invested in Tesla stock at the start of the year is currently worth…

Jon Smith reveals the performance of Tesla stock in 2025 and explains why he doesn't believe the move lower is…

Read more »