BP is one of the cheapest stocks on the FTSE 100. Am I buying?

A bumper year of earnings for British oil giant BP (LSE: BP) has made the stock look astoundingly cheap. One measure, the price-to-earnings ratio, is now only 4.5 for the company. That looks like a bargain compared to the trailing 12 months P/E ratio of the FTSE 100 of around 14 and the 10-year Footsie average of 19. 

That means, compared to other UK-based firms, the company is generating a lot of profit for the 535p it would cost me to buy a share. Based on this, now could be a rare chance for me to buy into one of the cheapest stocks on the FTSE 100. 

A sideways stock

I see three reasons why this stock looks cheap that can help me work out if I should buy some shares. First, BP is what some call a ‘sideways stock’.

That’s a name given to a company whose share price doesn’t go up or down much over long periods. I think the term is suitable for the oil firm over the last couple of decades as the following graph shows. The reason this lack of growth is a problem is that if I held a stock like this then I’d have to rely on dividend payouts to get a return on my investment. 

As I mentioned, BP’s current dividend yield is 3.92% for the year. That’s not awful, but a lot of investors would say 4% is a mediocre return which could drive the share price down.

A banner year

Second, BP’s current P/E ratio uses earnings from the last 12 months. While the 2022 profits of GBP28bn are impressive, the profits from 2021 were only GBP13bn. 

The reason for the high 2022 figure is the recent boom in oil prices which surpassed £120 a barrel at their peak. I suspect this was a temporary boost, and the fact that the current price for a barrel is already down to below £80 makes me think I’m right.  As such, the stock only seems extremely cheap looking at the last 12 months.

And actually, the P/E ratio at the end of 2021 was at 11.8, which makes the stock seem less of a no-brainer buy.

The long term

Finally, another factor that makes BP look cheap is its future prospects. Oil and gas companies are similar to tobacco companies in that the products they sell have an uncertain future. The oil behemoth does have an interest in what it hopes are future-proof renewables, making a £356m investment in low-carbon projects in the first half of 2022. However, over the same period, it invested £4.5bn in oil and gas projects. 

Spending 12 times more on oil projects than renewables tells me where the focus for the firm is.

So even if the stock does look cheap, I’d be concerned about what the share price would do over the long term.

Taken together, I believe these three reasons explain why I won’t buy shares in the firm right now despite its cheap valuation.

Tags:

aldi listed on couponmatrix.ukallplants listed on couponmatrix.ukchemist4u listed on couponmatrix.ukcherry-lane-garden-centres listed on couponmatrix.ukthe-north-face listed on couponmatrix.ukwhite-stores listed on couponmatrix.uk
aldi listed on couponmatrix.ukAldi first rose to prominence in the UK when Credit Crunch-strapped consumers started trying to reduce their weekly outgoings - but millions quickly realised that shopping at Aldi meant they could save without compromising on quality and have remained loyal ever since. Our Aldi vouchers push prices even lower to almost unthinkably low levels, and with housewares and garden supplies on offer as well as food you’ll find yourself returning again and again once you’ve given them a try.
allplants listed on couponmatrix.ukallplants is the all-vegan (and totally delicious!) meal delivery service putting plants in the limelight. Whether you’re a long-time veggie or giving meat-free Monday a try, allplants puts the flavour into veggies with exciting meals like creamy cashew mac and cheese and protein-packed power bowls. An allplants discount code from Groupon keeps it affordable, so you can shake up the menu with a food subscription that fits your budget and lifestyle. Order your favourite meals again and again or change it up with every delivery – the world is your oyster!
chemist4u listed on couponmatrix.ukPut your personal health in the best aid the web can offer with Chemist4u, an online-based pharmacist with an aim to help cut costs, time and hassle out of everyone’s healthcare routine. Backed by a healthy selection of vitamins, supplements, skincare, baby goods and more, a Chemist4u promo code can help stack up savings on an array of everyday essentials you know and need.
cherry-lane-garden-centres listed on couponmatrix.ukCherry Lane Garden Centres offer a wide range of products and services for gardening enthusiasts. They have a wide selection of plants, seeds, tools, garden furniture and accessories, each available for less whenever you've got a Cherry Lane Garden Centres discount code handy. So whether you're just looking to grow a herb garden for your cooking or you wish to give your greenery a whole new look, you'll find all you need to succeed at Cherry Lane Garden Centres. At Groupon, we understand that everyone loves a discount. That's why we work hard to find the best discount codes for Cherry Lane Garden Centres products and services, so you can save money on your next purchase. The brand also offers a loyalty card scheme which gives members exclusive offers and discounts. If you're looking for more ways to save, we update our selection of codes regularly, so be sure to check back often to find the latest and greatest deals. Looking to spruce up your garden? Cherry Lane Garden Centres has everything you need to get the job done, and with our selection of Cherry Lane Garden Centres vouchers, you can save big on your next purchase. Their top-performing products include a wide range of plants, seeds, tools, garden furniture and accessories - all available at discount prices. So regardless of if you're looking to add some colour to your greenery or simply restock your garden shed, Cherry Lane Garden Centres will have all you need.
the-north-face listed on couponmatrix.ukThe North Face started out with a mission to make sure outdoor athletes could always count on their gear no matter how bad the weather was. Clothing made for the purpose of traversing rugged terrain also makes for the perfect, stylish winter getup in day to day living. Now that The North Face and Groupon have linked up, you can use a North Face discount code to secure a great deal on all of this top class gear.
white-stores listed on couponmatrix.ukThere's nothing quite like outdoor living, with BBQs, bar sets, firepits, and practically anything designed for your garden or outdoors, Whitestores is the one-stop destination for everything you require. Whether you're throwing a party, or are looking for some permanent features to liven up your garden, the Whitestores range will have something for you and now, with your Whitestores discount code, creating a stunning space doesn't need to cost the earth. Put out some solar lights or a patio heater and get ready for outdoor living year-round with Whitestores.