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So how have Shell (LSE: SHEL) shares done lately? Pretty limp, comes the answer.
They’re up a modest 7% over the last 12 months. By comparison, the FTSE 100 as a whole grew 16.3% before dividends. The oil and gas giant has trailed notably in that time.
Most of the action – such as it is – has come in recent weeks. The Shell share price is up 5.5% since the start of the year. If an investor had put £10k into the stock when markets opened in January 2025, today they’d have £10,555. That’s a gain of £555, before trading charges.
When will this FTSE 100 stock get fired up?
The phrase ‘shooting the lights out’ doesn’t exactly spring to mind. However, often the best time to invest in a stock is when it looks a little underwhelming. Before the recovery, rather than afterwards. Assuming there is one.
Shell’s financial results have been mixed, reflecting the challenges of fluctuating energy prices. On 30 January, the board reported a sharp drop in adjusted earnings from $6bn in Q3 to $3.7bn in Q4. Weaker refining margins didn’t help.
Shell nonetheless generated $39.5bn of free cash flow across 2024, up from last year’s $36.5bn despite lower energy prices.
The board is also continuing its astonishing share buyback spree, paying a further $3.5bn before Q1 results. That’s the 13th consecutive quarter of at least $3bn of buybacks while cutting net debt and hiking the latest dividend by 4%.
Analysts remain cautiously optimistic. The 19 analysts offering one-year share price forecasts have produced a median target of 3,292p. If accurate, this would represent an increase of more than 23% from today. Plus, there’s a forecast dividend yield of 4.7%, nicely covered 2.5 times by earnings.
Forecasts are not guarantees and are subject to various market risks, of course.
That’s a huge share buyback, plus dividends
Brent crude oil has now retreated below $73 a barrel. While Shell can break even at much lower prices, further slippage will squeeze revenues.
If we get a peace deal in Ukraine and Russian oil production is liberated, the oil price could come crashing down. Donald Trump is urging the US to get drilling, which could increase production and sink the price. Both could harm Shell. Oil stocks are on a knife edge. They usually are.
Shell’s current valuation appears attractive. The company’s price-to-earnings (P/E) ratio stands at 8.84. This modest valuation, combined with the board’s commitment to shareholder returns and strong cash flow generation, makes it a compelling consideration for long-term investors.
There’s talk of a primary New York listing, to drive up the valuation. I’m not paying too much attention to that. It could just be speculation, or the Shell board floating it as a threat to the UK government. And when Glencore said it was looking to shift to the US, its share price actually fell.
I’ve already got exposure to the oil and gas sector, via BP. To an investor who wants to up their own exposure, I’d say Shell is well worth considering today. The long-term gains should roll up, provided they can withstand the short-term volatility.
