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The BP (LSE: BP) share price has found the going tough lately. Shares in this FTSE 100 oil giant are up just 2% in the past 12 months and down almost 25% over two years. For such a big-name UK blue chip, that’s disappointing.
So why would any investor consider buying BP today when many companies in the FTSE 100 and FTSE 250 are going great guns?
Because, as everyone knows, past performance isn’t a guide to the future. Stock returns can be cyclical, as recent strong winners become expensive and run out of steam, while strugglers start to look cheap and attract attention. BP is definitely struggling. Does it offer deep value today?
FTSE 100 valuation check
The simplest way to assess that is by looking at its price-to-earnings ratio. At first glance, BP looked expensive, showing a P/E of a staggeringly high 233 based on last year’s earnings. A figure of 15 is seen as fair, so that’s steep.
However, it may also be misleading, because the company’s earnings per share (EPS) slumped 97% last year and skewed the calculation.
Based on forecast earnings for full-year 2025, the P/E falls to around 13.6, and potentially to 10.9 for 2026. That suggests the stock may be turning a corner.
However, earnings aren’t guaranteed and will depend on a number of factors, of which the biggest is the oil price. That has just slumped to a five-month low of around $62 a barrel, amid weak demand and fears of a supply glut.
If oil prices stay low or even slide further, BP’s shares are unlikely to rocket. Ultimately, nobody can predict the oil price with any certainty, so investors have to take a bit of a punt. That’s the case with any stock. There’s more risk involved, but over the long run, the potential rewards are much higher than almost any other investment.
Dividend and share buybacks
Even with the shares trailing, and the outlook uncertain, investors are buying BP. I personally bought the shares three months ago. Why?
Quick answer: for the dividend income. BP shares are forecast to yield an impressive 5.95% over the next year, rising to around 6.16% in 2026.
Dividends aren’t guaranteed, but that high yield is still very tempting. BP also rewards investors with share buybacks, currently running at $750m a quarter. Buybacks reduce the share count and should boost future earnings per share and dividends.
A cyclical sector
Today, the oil price is down and BP is struggling. That could change, but I don’t think it will happen overnight.
Despite that, I still think BP shares are worth considering today. But only if the investor is willing to hold on for the longer run, by which I mean at least five years. During that time they can reinvest their dividends to build their stake, while waiting for the stock to recover. I wouldn’t say BP offers deep value today, but I do think it does offer value. And plentiful dividends.
Unconvinced? That’s fine! At the Fool, we can see plenty more exciting FTSE stock opportunities out there today. Some offer even more value than BP, and with less risk.
