Should I buy Shell shares, or am I too late?

Shell shares have been on a steep upward track this year with the oil price soaring. But is it too late to buy Shell stock?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

happy senior couple using a laptop in their living room to look at their financial budgets

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shell (LSE:SHEL) shares are up 76% over the past year. That’s remarkable when we consider the narrative during the pandemic when people wondered whether there was any value in hydrocarbon stocks.

But with the oil price surging in 2022, Shell and its peers have turned huge profits. Shell’s first-quarter profits were its highest on record. In turn, the share price has skyrocketed from 1,400p per share a year ago, to around 2,360p right now.

So, should I buy Shell stock or am I too late?

Recent performance

In May, Shell reported record first-quarter profits. Adjusted earnings rose 43% from the previous quarter to $9.13bn, beating average analyst forecasts of $8.67bn. Q1 earnings were nearly 300% greater than the $3.13bn reported a year earlier.

Shell also reported a 81% increase in cash flow from operating activities, reaching $14.8bn.

Soaring revenues were driven by an increase in the oil price which has been inflated by Russia’s invasion of Ukraine and sanctions levied on Moscow and Russian businesses. Brent crude hit $124 a barrel on Tuesday — the highest for three months.

Prospects

Firstly, Shell will be hit by a windfall tax relating to its huge Q1 profits, as will other energy firms. Shell said that the Chancellor’s tax “creates uncertainty about the investment climate for North Sea oil and gas for the coming years“.

The windfall tax will remain in place until “normal” conditions in the energy market return or until the end of December 2025.

In all honesty, I’m not sure how this will impact Shell’s operations. Some analysts have suggested it will be a sizeable hit, others have claimed that oil companies can frontload their investment plans to offset the windfall tax.

Shell’s current level of profitability is also dependent on oil prices remaining high. Oil dipped today and most analysts think it will remain just above $100 this year.

But there’s lots of factors at play here. There has been speculation that OPEC may eject Russia from its production calculations, therefore allowing OPEC members to increase their production. However, it’s not clear how much spare capacity there is within OPEC.

I also anticipate China will introduce more lockdowns this year as Beijing attempts to tackle Covid. If we see severe and prolonged lockdowns, this could negatively impact demand for oil.

There’s also some negative forecasts for economic growth in the West. That won’t be good for oil demand.

Should I buy Shell?

So, will I buy Shell stock? Despite the record quarter, no.

Firstly, I think we’re going to see some downward movement in the Shell share price in the coming weeks but that will probably depend on the outcome of the OPEC meeting in Vienna tomorrow.

Looking further ahead, I see China’s zero-Covid policy and negative economic forecasts in the West dragging the oil price down. As a result, I don’t see Shell going higher and I won’t be adding this stock to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE 100 shares yield under 4%. Here’s why that matters!

A higher dividend yield and share price growth do not necessarily come together. So, why is this writer happy to…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how I’d start buying shares with £5 a day

Our writer uses his market experience to consider how he might start buying shares from scratch today, for just a…

Read more »

Investing Articles

By investing £80 a week, I can target a £3k+ second income like this

By putting £80 each week into carefully chosen shares, our writer hopes to build a second income of over £3,000…

Read more »

Dividend Shares

Here’s a simple 4-stock dividend income portfolio with a 7.8% yield

With these four British dividend stocks, an investor could potentially generate income of around £780 a year from a £10,000…

Read more »

A young black man makes the symbol of a peace sign with two fingers
Investing Articles

2 FTSE shares that could get hit by Trump tariffs

Many FTSE shares rely on the US for business and the potential introduction of tariffs on foreign imports could hurt…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Finding shares to buy can be complicated. Here’s a lesson from the US election

Identifying shares to buy is difficult. But Stephen Wright thinks monitoring what directors buy might be an under-appreciated source of…

Read more »

Investing Articles

What makes a great passive income idea?

Christopher Ruane earns passive income by owning blue-chip shares like Legal & General. Here's the decision-making process that helps him…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

Here’s how I’d try and use an ISA to become a multi-millionaire!

Could our writer build his ISA to a multi-million pound valuation? Potentially yes -- and here is how he'd go…

Read more »