The Shell (LSE: SHEL) share price has delivered investors market-beating returns over the last 12 months. While the FTSE 100 is down 2.5%, Shell shares have climbed over 6%.
That being said, so far in 2024 the stock has dropped almost 4%. However, given the company’s recently announced results, could this be set to change over the next year? Let’s take a closer look.
Excellent results
Yesterday (1 February), Shell released its 2023 Q4 and full-year results. Its full-year earnings came in at $28bn, 29% lower than the prior year when it posted record earnings of just under $40bn. However, this is to be expected given the spike in oil prices after the crisis in Ukraine began in 2022.
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A stat that caught my eye was Shell’s earnings in Q4 specifically, which beat analyst expectations. Analysts had anticipated the oil giant’s earnings to be around the $6bn mark, but they actually topped $7bn.
The company attributed its results partly to robust margins from liquefied natural gas trading, which offset lower performance in oil products trading.
Shell also disclosed a 4% uptick in dividends for Q4. As a keen passive income investor, I am always on the lookout for encouraging stats like this.
Additionally, the company unveiled plans for a $3.5bn share buyback programme for the upcoming three months. This initiative builds on the previously announced $3.5bn share buybacks from November last year, which have now been completed. It’s always a good sign when a company buys back its shares. By reducing the number of shares out there, dividends are shared by fewer investors, and hence yields are pushed up.
My thoughts on valuation
Looking at Shell’s price-to-earnings (P/E) ratio, I also see value. Currently trading at just over seven times earnings, the stock is below my ‘value’ barometer of 10. For context, the FTSE 100 average P/E ratio is currently hovering around 14.
In addition to this, Shell’s primary competitors, the US oil behemoths Chevron and ExxonMobil, carry significantly higher P/E ratios, standing at 10.2 and 11, respectively. This signifies to me that the current Shell share price could be undervalued.
Uncertainty ahead
One of my primary concerns with oil giants like Shell is that they essentially need to reinvent themselves in the next few decades. With the world moving towards renewable energy, Shell must find new ways to generate profit.
That said, demand is expected to stay strong in the short term. In fact, according to the International Energy Administration, natural gas demand is expected to increase by five times this year.
The verdict
Overall, I like the look of Shell shares for my portfolio. Given the current low valuation and encouraging results, I think the shares could pick up this year. While some uncertainty remains over its transition to green energy, now could be a great time to buy for long-term growth. If I had some spare cash I’d be investing today.
