BP: BP P.L.C.
Oil drilling, refining, and transporting, and it markets and sells gasoline retail.
Recent Range: $27/share – $78/share (Current Price: 44.17, as of close of 12/31/10)
Price/Sales (P/S) = 0.46 (0.86, Industry)
Price/Book (P/B) = 1.55 (1.80)
Gross Margin = 4.3% (27.4%)
Pre-Tax Margin = -2.3% (+11.0%)
Debt/Equity Ratio = 0.45 (0.29)
Current Ratio = 1.0 (1.2)
Return on Equity = -5.3% (+14.3%)
Return on Assets = -1.9% (+7.4%)
Analysis: This company was really a great buy a couple of months ago, but I still think there is more room to grow here.
This business has the upside and downside of brand awareness. Plenty of people knew of this company when 2010 began. When it ended, EVERYONE knew who they were—not for good reasons.
This plays into the hands of the people who buy the stock, though.
Usually, people tend to buy what they know is a good, solid company. BP fit that bill, and it was overpriced more often than not.
However, the oil spill of 2010 made the stock tank. It does not seem like the company handled that spill very well, but it was a tiny misstep in their entire operations. Within a few years, the company will no longer feel its affects.
Also, this company is in the oil industry. Oil is one of the few industries that is growing, despite the resource, itself, actually declining. There is more than enough money in oil that there are plenty of companies that are willing to drill where they are allowed (onshore) and plenty others who are positioning themselves for where it is disallowed today (offshore).
Even though the public is crying about oil killing the environment, and it is politically the “in” thing to do for regulation to demand money be set aside for alternative energy development, oil is going nowhere but in our lives for the long foreseeable future.
The world will be a better place when alternative energy is developed. However, the largest effort to develop these alternative sources is coming from large companies and the government. Neither of these tend to be the quickest or most efficient developing new things or implementing change.
The oil industry is far from dead.
The oil companies seem to almost unionize amongst each other, an unofficial oligopoly. This means that they can control the amount of oil production and supply available to us, which should help force up prices, especially as political pressure eases. A few years ago, there was a lot of pressure to reduce the gas prices from over $4.00 per gallon. The world is bracing itself for it now—not revolting.
This paves the way for higher profits and higher stock prices—not lower.
BP and its other giant oil company comrades will continue to be cash cows. Most of the others, though, are already priced to reflect that demand. Because of the political backlash from the oil spill, BP still has room to make up this gap.
The company’s numbers look bad, but these numbers are negatively skewed from
Even the debt to equity ratio is higher than its competition. Usually, that would make me run for the hills, but the oil industry is in expansion mode. The money they borrow will generate a lot more money for them than their lenders will charge them for it. That is how profit is made in the expansion game, and this company seems to be playing it perfectly.
Just make sure to pay attention to alternative energy source development. If it seems like it’s getting closer to being part of mainstream consumption, then be more concerned about the higher debt to equity ratio. (Think of the auto companies.) Until then, enjoy the ride—UPWARD.
I don’t think this is the greatest buy on the market, but I think you could do a lot worse. This is a way of buying a commodity (oil) that actually produces money, unlike gold. Once the price reaches a level closer to its competition, it might be time to consider selling, but there is room for the price to grow.
No comments:
Post a Comment