The last time I took a close look at the BP (LSE: BP.) share price around September, it was on an upward trajectory.
However, since that time, it has dropped. If you follow BP and its activities, this is not unusual. Its share price meanders up and down akin to an exciting roller coaster, and it has done for some years. I imagine it’s not the most fun journey for existing shareholders!
So what’s been happening and what could happen in the future? Furthermore, should I buy some shares? Let’s do some digging and take a look.
At the mercy of external issues
Now most stocks have a certain amount of volatility when external issues come into play. However, I reckon oil stocks are some of the most affected.
Macroeconomic and geopolitical issues can impact the price of oil, either up or down, depending on the nature of the issue, and this can hurt or help stocks like BP.
In BP’s case recently, the tensions in the Middle East, intensifying from October, as well as more recent developments in the Red Sea, haven’t helped the oil giant.
Over a 12-month period, BP shares are down 7% from 480p at this time last year, to current levels of 445p. However, in October, it rose as high as 580p.
The bull case
There are some enticing factors that could tempt me to buy BP shares today.
First of all, BP shares look great value for money on a forward price-to-earnings ratio of just six for 2024. This is a really attractive valuation, if you ask me, when I consider the FTSE 100 average is closer to 13.
Next, although the BP share price has struggled at times, the business has a decent track record of paying out dividends. At present, a dividend yield of 5.2% is very tempting to help me boost my passive income. However, I’m conscious that dividends are never guaranteed.
Finally, as one of the largest firms in its sector, BP’s position providing fossil fuels as the population rises could be pivotal. Increased demand could boost investor sentiment, performance, and returns.
Risks and my verdict
From a bearish perspective, BP does have a lot of debt on its balance sheet at present. This could hinder the BP share price as debt is trickier to pay down during times of higher interest rates.
In addition to this, the green revolution has started! The world has realised the need to move away from traditional fossil fuels and towards cleaner, greener alternatives. I’m sure BP has plans to join and capitalise on this but, at present, it is still reliant on its oil-based operations.
Overall, I’m buoyed by BP’s attractive valuation and passive income opportunity. However, I’m put off by its level of exposure to external challenges. This can hurt the shares and potentially performance too.
I won’t rush to buy BP shares, if I’m honest. I’d much rather buy other stocks to help me boost my wealth with better fundamentals and growth prospects.
