Is the BP share price about to take off?

Key points

• The company recorded a $12.8bn profit for the 2021 calendar year
• Greater demand is pushing up oil prices, which are closing in on the $100 per barrel mark
• BP has a lower forward P/E ratio than two major competitors 

A giant of the oil and gas industry, BP (LSE: BP) undertakes operations at every corner of the globe. As oil prices continue to rise, breaking the $90 level, the company has posted bumper profits. Some consider oil a dying energy source, but it is clear that it will be required for many years to come. I want to know if the BP share price could climb higher. Also, is it good value for money? Should I add it to my portfolio, which is geared for the long term? Let’s take a closer look.   

Recent results and the BP share price

BP’s full 2021 calendar year results were published on 8 February 2022. Shareholders were immediately drawn to the profit figure. This stands at $12.8bn, up from a $5.7bn loss for the 2020 calendar year. Indeed, the company recorded $4.1bn profit for the three months to 31 December 2021. This beat expectations of $3.93bn. The BP share price increased 2.5% on the day of the announcement and has risen 42% in the past year. This is in large part due to the global reopening after the pandemic and surging oil prices. Brent crude oil, for instance, is nearly through $100 per barrel.

Investment banks reacted positively to these results. JP Morgan raised its target for the BP share price to 600p from 590p, while Morgan Stanley increased its target to 465p from 401p. Both of these figures are quite far above the current BP share price of 378p. This indicates that the shares could possibly be a source for long-term investment growth for my portfolio.

An undervalued and consistent earner

For the calendar years 2017 to 2021, the firm’s earnings-per-share (EPS) has grown from ¢17.2 to ¢37.57. By my calculations, this represents a 16.9% compounding annual EPS growth rate. This is extremely solid and consistent, showing that the company is delivering earnings for its shareholders year in, year out.

While all of the results point to a well-run business, investment is not without its risks. The firm owns a 19.75% stake in the Russian state oil company, Rosneft. With heightened tensions in this region due to the rapidly unfolding security situation, I will be watching this part of the business very closely.

Nonetheless, the BP share price looks to be slightly undervalued when compared with competitors. With a forward price-to-earnings (P/E) ratio of 6.97, the figure is lower than Shell (LSE: SHEL) at 7.7. It is also lower than ExxonMobil Corp  (NYSE: XOM) at 12.22. This gives me confidence that any purchase I make of BP shares may well be in a business that is fundamentally undervalued. 

The surging oil price and a strong results record make the BP share price attractive. Furthermore, it may well be a cheap stock to purchase. I will be buying shares in BP without delay, because it may be about to take off.