Has Elliott’s Push for Change Created an Opportunity in BP Stock?

If you have been eyeing BP stock and wondering whether now is the moment to dive in or reconsider your position, you are far from alone. The company's share price has delivered a rollercoaster ride in recent years, rising 159.1% over five years, but showing a flat result over the past month with a -0.8% return in both the last seven days and the last 30 days. The year-to-date gain sits at 4.3%, and the stock has returned 9.1% over the last year. Those numbers hint at both resilience and unpredictability, as BP navigates an evolving energy landscape and shifting investor sentiment.

Recent headlines have offered plenty of intrigue for BP watchers. OPEC+'s plans to steadily ramp up oil production in October and November have prompted a fresh look at future oil prices, demand, and what that means for BP's profitability. Meanwhile, activist investors like Elliott are publicly pushing for faster action on cost controls and capital allocation, shining a spotlight on the company’s leadership and strategy. These factors are reshuffling the risk equation for BP, putting its future potential and pitfalls in sharper focus.

But are the shares cheap or expensive? BP currently sports a value score of 5 out of 6, meaning it appears undervalued on most traditional valuation checks, a significant point for long-term investors. In the next section, we will break down exactly how BP stacks up across these key valuation measures, as well as explore a smarter way to think about what the numbers really mean.

Why BP is lagging behind its peers

Approach 1: BP Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future free cash flows and then discounting those back to today’s dollars. For BP, this method uses current and expected cash flows to determine what the business is intrinsically worth right now.

Currently, BP generates free cash flow (FCF) of $10.3 billion. Analyst estimates suggest FCF could reach about $12 billion by 2029, with further long-term projections extrapolated beyond the first five years. Over the next decade, Simply Wall St’s model expects BP’s annual free cash flow to generally grow, though the pace slows in later years.

Based on these projections and discounting them to the present, BP’s DCF fair value lands at $9.29 per share. This represents a 54.7% discount to its current share price, which suggests BP stock is significantly undervalued according to this model.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for BP.

Our Discounted Cash Flow (DCF) analysis suggests BP is undervalued by 54.7%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: BP Price vs Sales

The price-to-sales (P/S) ratio is the preferred metric for analyzing BP, especially as it provides a clear snapshot of how the market values each pound of the company’s revenue. For profitable companies like BP, the P/S ratio is particularly useful because it helps investors assess the value of a business regardless of short-term swings in earnings, which can be common in cyclical industries like oil and gas.

A company’s growth prospects and risk profile can significantly sway what counts as a "normal" or "fair" P/S ratio. Higher growth often justifies a higher multiple, while elevated risk tends to reduce it. BP is currently trading at a P/S ratio of 0.47x. This is dramatically lower than the Oil and Gas industry average of 1.64x and lower than its peer group average of 1.54x, suggesting that the market is assigning a cautious valuation to BP’s sales.

Simply Wall St’s proprietary “Fair Ratio” for BP stands at 1.31x. Unlike basic comparisons to industry or peers, the Fair Ratio factors in BP’s growth outlook, profit margins, risk profile, size, and its sector context. This makes it a much more tailored benchmark for judging valuation. Because BP’s current P/S is well below its Fair Ratio, the stock appears undervalued on this measure.

Result: UNDERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your BP Narrative

Earlier we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple but powerful tool that allows you to build your own story behind the numbers by combining your views on BP's future revenue, earnings, and margins with your personal assumptions about risk and opportunity. Narratives link the company’s business story directly to a financial forecast and then to a calculated fair value, letting you clearly see how your expectations compare with the market price.

On Simply Wall St’s Community page, millions of investors use Narratives to anchor their buy, hold, or sell decisions. By easily entering your beliefs and seeing dynamic, real-time updates as new news or earnings are released, you can track whether BP is trading below or above your idea of its Fair Value. For example, some investors see BP’s robust upstream growth and cost reductions and assign a bullish Fair Value as high as £5.20, while others raise concerns about long-term profitability, setting a more cautious Fair Value closer to £3.82. With Narratives, you can quickly test your own investment thesis and spot opportunities, all in one place.

Do you think there's more to the story for BP? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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