Hydrocarbon prices worldwide are surging and, against this backdrop, the BP (LSE: BP) share price is starting to look incredibly appealing.Â
Over the past couple of years, the company’s outlook has been highly dependent on oil prices. Even though the business is expanding its green energy division, this division is still relatively small compared to the oil and gas side of the operation.
As such, I think it will be several years before green energy takes over as the primary revenue generator for the enterprise. In the meantime, BP’s fortunes will remain tied to oil and gas prices.Â
The good news is that as hydrocarbon prices return to multi-year highs, the company’s outlook is improving dramatically. I think this could present an interesting opportunity for long-term investors. Investors who are prepared to overlook the firm’s poor environmental credentials.Â
The outlook for the BP share priceÂ
Over the past couple of months, as the oil price has charged higher, City analysts have been rushing to review their forecasts for its earnings growth over the next couple of years.
Analysts now believe the enterprise will report a net profit of $14bn for its 2022 financial year. This puts the shares on a forward price-to-earnings (P/E) multiple of 6.9.
This looks incredibly cheap compared to the rest of the market, which is trading at a multiple of around 14 and BP’s own history. Indeed, over the past five years, the stock has traded an average P/E multiple of around 10.
That said, I need to take a couple of things into account when analysing the BP share price. For a start, the highly volatile oil price dictates the company’s fortunes. Today, oil prices are trading at a multi-year high, but this might not last. BP’s growth will not live up to expectations if prices fall next year.Â
At the same time, as I mentioned above, BP’s environmental credentials leave much to be desired. As one of the world’s largest hydrocarbon producers, the firm is responsible for pumping vast amounts of CO2 into the atmosphere every year. This could become a massive liability for the business if it does not clean up its act.Â
Growing potentialÂ
Still, despite these risks, the firm has plenty of opportunities as well. It plans to invest billions over the next few years to build out its renewables business.
As this division grows, the firm’s dependence on oil and gas will decline. The company’s current windfall from high oil and gas prices will certainly help it achieve this aim. So in some respects, current exposure to the hydrocarbon industry could help it meet and beat its green aims.Â
Considering this factor and the corporation’s current valuation, I think the BP share price does appear to be a bargain for 2022 and beyond.
Not only does the company look cheap compared to its profit potential, but it also has a long green runway for growth ahead. And on top of these factors, the stock offers a dividend yield of 4.2%.
Based on these factors, I would buy the stock today.Â