The Shell (LSE SHEL) share price looks cheap right now, with a price-to-earnings ratio of just 8.95. That’s well below the average FTSE 100 P/E of 15 times.
There’s a reason for that, of course. Shell shares have fallen with the oil price, slumping almost 10% in 12 months. They’re still up 67% over five years though.
That’s less than half the drop suffered by FTSE 100 rival BP. Shell seems to have a better idea how to navigate the push to net zero, but with the oil price hovering around $65 a barrel, it’s still struggling.
Recovery stock?
It’s far from a done deal that Shell can bounce back from today’s lows and make investors rich all over again.
There is little sign the oil price is about to recover. With OPEC+ increasing production, it could fall further, especially as China struggles and Donald Trump brings volatility.
Then there’s the push towards net zero, which could go either way. Theoretically, building a new line of renewable energy will threaten fossil fuel behemoths, but we need them to help us push through the transition. This is particularly true given exponentially rising energy demand, thanks to AI and the rest.
Shell’s first-quarter results, published on 2 May, showed adjusted earnings of $5.6bn. That’s a big drop from $7.73bn a year earlier but ahead of analyst expectations of $4.96bn. The company also announced another $3.5bn quarterly share buyback programme, marking the 14th consecutive quarter of at least $3bn in buybacks.
Cash flow from operations came in at $9.3bn, slightly below consensus expectations of $9.6bn.
Dividend track record
So what about that dividend? A trailing yield of 4.4% is okay, but not exactly to die for. It’s expected to creep up in 2026, but only to 4.49%.
Shell isn’t the dividend superstar it once was. Over the last 15 years, I would have expected shareholder payouts to compound at a decent clip. Instead, it’s fallen by an average of 2.88% a year.
The board didn’t just slash its full-year dividend from 188 US cents in 2019 to 65.3 cents during the 2020 pandemic. It rebased it. While payouts have climbed at a decent clip since, they started from that lower level. In 2024, the total dividend was 139 US cents. That’s at levels last seen in 2007.
Analyst forecasts
The 19 analysts serving up one-year share price forecasts have produced a median target of around 3,027p. If correct, that’s a handsome increase of around 21.5% from today. Combined with that yield, this would give investors a total return of 26%.
Based on that, if somebody invested £10,000 in the stock today, it would grow to £12,600 in a year.
Obviously, nobody can predict the future like that. I use it only as a guide to market thinking. Here’s another. Of the 32 analysts giving one-year stock ratings, an impressive 23 name Shell a Strong Buy. Four say Hold and five say Sell.
Shell continues to face risks, as the oil price slows, net zero spreads confusion, and the global economy struggles. It may look cheap, but there’s no guarantee its shares will suddenly close the valuation gap.
But for those wanting exposure to energy, today’s low valuation does make Shell worth considering. More so than BP, in my book.
