Is BP Still a Value Opportunity After its 107.7% Surge and Strategy Shift?

• If you are wondering whether BP is still a value opportunity after its big run over the last few years, or if most of the upside is already priced in, this article will walk you through that question step by step.
• Despite climbing 107.7% over the last 5 years and 17.5% over the past year, the stock has cooled recently, with a 9.0% gain year to date but short-term dips of 3.0% over 7 days and 4.7% over 30 days that may be catching value-focused investors' attention.
• Those moves have played out against a backdrop of shifting energy markets, with BP in the headlines for doubling down on cash returns via dividends and buybacks while also adjusting its long-term transition strategy toward lower-carbon operations. Investors have been weighing whether that balance between near-term shareholder payouts and long-term energy transition spending justifies a higher, or more cautious, valuation.
• Right now BP scores just 2 out of 6 on our undervaluation checks. Next we will break down what different valuation approaches are indicating about the stock, and then finish with a more holistic way to think about BP's value that goes beyond the usual models.

BP scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: BP Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company is worth by projecting the cash it can generate in the future and then discounting those cash flows back to today, using a required rate of return.

For BP, the model starts with last twelve months free cash flow of about $11.1 billion and extends analyst forecasts and extrapolated estimates over the next decade. By 2029, annual free cash flow is projected to be around $10.9 billion, with later years growing modestly from that base as Simply Wall St phases in slower, more mature growth assumptions.

Adding up all these discounted cash flows gives an intrinsic value estimate of roughly $9.88 per share. Compared with the current market price, this implies BP trades at about a 55.5% discount to its DCF based fair value, suggesting the market is pricing in either weaker cash flows, higher long term risk, or both.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests BP is undervalued by 55.5%. Track this in your watchlist or portfolio, or discover 908 more undervalued stocks based on cash flows.

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

Approach 2: BP Price vs Earnings

For established, profitable companies like BP, the price to earnings, or PE, ratio is a useful way to gauge how much investors are willing to pay for each unit of current earnings. It naturally blends expectations about future growth with perceptions of risk, since faster growing, lower risk businesses usually command higher PE multiples, while slower growth or higher uncertainty tends to push the multiple down.

BP currently trades on a PE of about 59.24x, which is far above both the Oil and Gas industry average of around 13.30x and the broader peer group average of 11.05x. To go a step further, Simply Wall St also calculates a Fair Ratio, its proprietary estimate of what BP’s PE should be once you factor in fundamentals such as earnings growth outlook, profit margins, industry dynamics, company size and risk profile. For BP, that Fair Ratio is 21.11x, implying the present market multiple looks richer than what those fundamentals alone would justify.

On that basis, BP screens as meaningfully overvalued relative to its Fair Ratio, even after allowing for some premium for its scale and strategic positioning.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your BP Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, a simple framework on Simply Wall St’s Community page that lets you connect your view of BP’s story with a financial forecast and an implied fair value. You can then compare this to today’s share price and decide whether it is a buy, a hold, or a sell. That Narrative then updates automatically as new news, earnings, or guidance come in. For example, one investor might build an optimistic BP Narrative based on stronger upstream execution, improving margins toward around 5 percent and a fair value close to the upper analyst target near 520 to 525 GBp. Another could construct a more cautious Narrative that leans into capital allocation risks, slower energy transition progress and a fair value closer to the low end of recent targets around 382 GBp. Yet both are using the same structured tool to turn their story about the company into a consistent set of revenue, earnings and margin assumptions, and a dynamic fair value anchor for their decisions.

Do you think there's more to the story for BP? Head over to our Community to see what others are saying!

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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