Shell (LSE:SHEL): Reassessing Valuation After Recent Share Price Drift

Shell (LSE:SHEL) has been drifting lower over the past month, even as its longer term returns remain solid. This sets up an interesting moment to revisit the stock’s valuation.

See our latest analysis for Shell.

Over the past year Shell’s share price return has been steadily positive, while the recent 30 day pullback suggests momentum is cooling a little even as long term total shareholder returns remain robust.

If Shell’s recent drift has you reassessing the energy space, it could be a good moment to see what else is moving among aerospace and defense stocks.

With Shell trading at a double digit discount to analyst targets and an even steeper gap to some intrinsic value estimates, investors now face a key question: is this a genuine value window, or is the market already correctly pricing future growth?

Most Popular Narrative Narrative: 15% Undervalued

With Shell’s fair value estimate sitting above the £26.62 last close, the prevailing narrative points to upside that the recent pullback has not erased.

The company's strong shareholder returns policy reflected in ongoing multi-billion-dollar buyback programs and a commitment to distributing 40 to 50% of cash flow from operations combined with a solid balance sheet, is set to underpin EPS growth and maintain investor appeal, even in the face of cyclical price downturns.

Read the complete narrative.

What kind of earnings climb and margin uplift does it take to justify this richer future profit multiple on a slow growing revenue base? The narrative lays out a precise roadmap that leans heavily on rising profitability, disciplined capital returns and a tighter share count, but the real surprise is how much depends on one key set of assumptions you have not seen yet.

Result: Fair Value of £31.31 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent chemicals weakness and a tougher LNG pricing backdrop could squeeze margins and free cash flow, which may challenge both valuation upside and generous buyback plans.

Find out about the key risks to this Shell narrative.

Another Angle on Valuation

Shell looks cheap against our fair value estimate, but its 14x price to earnings sits above the European oil and gas industry at 11.5x and below a 15.2x peer average. With a fair ratio near 18.5x, is today’s discount a cushion or a value trap in disguise?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Shell Narrative

If you see the story differently or want to stress test the assumptions with your own research, you can build a full narrative yourself in just a few minutes: Do it your way.

A great starting point for your Shell research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

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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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