Is BP’s Share Price Surge Justified Amid Oil Price Optimism in 2025?

• Thinking about whether BP is actually a bargain or just riding on energy sector hype? Let’s get into what’s been driving its value and what that means for your next move.
• BP's share price has gained 10.8% in the last month, 14.3% year-to-date, and delivered a whopping 142.0% return over five years, hinting at both renewed growth prospects and shifting sentiment around risk.
• Much of this momentum has been fueled by recent news, including increased oil price optimism and industry-wide conversations about energy security and climate transition. International deals and ongoing discussions about BP’s strategic shift toward renewables have kept the spotlight on future growth versus traditional oil operations.
• On our valuation checks, BP scores a 2 out of 6 (see full scorecard), suggesting there is room for a deeper dive into what those numbers mean. Let’s break down the main valuation approaches, and stick around to discover an even sharper way to think about BP’s value at the end of this article.

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

The Discounted Cash Flow (DCF) method estimates a company’s intrinsic value by projecting future free cash flows and discounting them back to today’s value. This helps investors evaluate whether BP’s shares reflect its actual earning potential over time.

For BP, the latest twelve months' free cash flow stands at $11.12 Billion. Analyst estimates take this figure and project it into the future, with forecasts showing free cash flow reaching $10.95 Billion by 2029. Simply Wall St continues this projection out to 2035, based on reasonable growth assumptions.

Cash flow projections span billions of dollars each year, ranging from $10.45 Billion in 2026 to $12.33 Billion in 2035. Most of the nearer-term numbers (next five years) are based on consensus analyst estimates. Later years rely on trend-based forecasts.

When these future cash flows are discounted back to today and summed, BP’s estimated intrinsic value lands at $10.21 per share. At current prices, the DCF analysis suggests BP is trading at a 54.9% discount to this intrinsic value. This signals notable upside based on cash flow fundamentals.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests BP is undervalued by 54.9%. Track this in your watchlist or portfolio, or discover 879 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 (PE) ratio is a widely used tool to benchmark valuation. It provides a straightforward way for investors to see how much they're paying for each pound of BP’s earnings. This makes it especially meaningful for energy giants with stable profit streams.

Growth expectations play a big role in what counts as a “normal” PE. Higher expected growth or lower risk can justify higher multiples. On the other hand, low growth prospects or higher risks tend to pull the fair PE lower. BP’s current PE ratio is 61.3x, which stands out in comparison to its peer average of 11.7x and the broader oil and gas industry average of 13.6x.

Rather than just looking at industry averages or peers, Simply Wall St's proprietary “Fair Ratio” analyzes factors like BP’s earnings growth forecast, profit margins, market cap, risk profile, and industry context to offer a more tailored comparison. For BP, this Fair Ratio is 21.2x. This approach gives a clearer sense of what would be reasonable, factoring in unique company-specific traits rather than broad strokes.

Comparing BP’s actual PE of 61.3x to its Fair Ratio of 21.2x, the shares look significantly overvalued by this measure.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1405 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your BP Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your own simple, flexible “story” about BP. It connects what you believe about the company’s future (like its expected growth, margins, or risks) to a forecast of revenue and earnings, and then maps that to a fair value for the shares. Narratives make valuation more personal and practical: rather than just relying on a fixed consensus or formula, you build your view by adjusting assumptions that reflect your perspective and research.

These Narratives link BP’s real-world story, such as strategic deals, new discoveries, or climate transition plans, to the underlying numbers that actually drive fair value. This approach shows exactly how different events affect what the stock is really worth. On Simply Wall St’s Community page, millions of investors use Narratives to crowdsource insights, instantly see how new headlines change forecasts, and compare their own Fair Value to others' in a transparent and dynamic way.

For example, the most optimistic Narrative for BP currently factors in ambitious upstream growth and gives a fair value above £5.2, while the most cautious Narrative, focusing on transition risks and earnings volatility, lands closer to £3.82. With this tool, you can clearly see when your fair value suggests it’s time to buy, hold, or sell, and instantly update your thinking as new facts emerge.

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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