BP shares are rising on energy prices, but still look cheap. What is the market missing?

Some investors may be looking BP (LSE: BP) shares, given rising energy prices amid the conflict in the Middle East. But short-term asset flows are not a sound basis for any long-term investment decision.

The most important structural fact is that global energy demand will remain high for decades. And in many major energy-consuming countries, the transition to renewables may be much slower than predicted.

BP’s strategic exposure to oil and gas, and even renewables, leaves it well-placed to meet these diverse needs.

But is the stock still considered the underdog of all recent short-term interest?

Changing the power switch deadline

Policymakers are targeting a full energy transition by 2050, in line with the Paris Agreement’s Net-zero goal. But evidence continues to show that this timeline is unrealistic.

The International Energy Agency highlights the increase “launch gap”. It notes that fossil fuel demand remains near record highs and current policies are nowhere near a net-zero path.

Global consultancy McKinsey reports that less than 15% of the emissions technology needed for the Paris-aligned transition has been deployed. It adds that several major economies are now delaying or rolling back decarbonisation plans.

As global emissions continue to rise and countries like China, India, and the US increase their fossil fuel consumption, I believe the world will rely on oil and gas for much longer than previously thought.

Are stocks worthless now?

BP looks very undervalued on all key forward looking measures I believe. Historical measures are often distorted by one-off costs and the natural volatility of stock markets.

The stock’s 0.6 price-to-sales ratio is below its competitor’s, which averages 2.2. This is really cheap. These peers include A shell by 0.9, ExxonMobil in 1.9, Chevron at 2, again Saudi Aramco in 4.1.

BP’s price-to-earnings ratio of 14.9 compared to a peer group average of 20.5 looks cheap. And it’s the same with its price-to-book ratio of 1.9 compared to its competitors’ average of 2.5.

These metrics point to a company that the market may be underestimating relative to its long-term revenue generation potential. This is especially true when combined with its surprisingly high climate benefit.

Specifically, analysts forecast a dividend of 27.6p in 2028, for a yield of 5.4%.

It is powered by strong income growth

BP’s share price and dividends will ultimately be driven by earnings growth, like all companies. The risk here is any longer period of oil and gas prices. However, analysts predict that revenue will grow at an average of 29% per year in the medium term.

This outlook is well supported by your latest full year 2025 results. These saw cash flows of $24.5bn (£17.9bn), despite soft commodity prices.

This is supported by the recorded performance: the reliability of the ascending plants reached 96.1% and the availability of the refinery reached 96.3%. These measures are important because higher reliability directly increases volumes and margins, which in turn supports profit margins and long-term growth.

My investment idea

I believe that long-term energy demand looks strong, supporting strong earnings growth that should deliver strong cash flow in the coming years.

BP’s operating performance and rising profit projections reinforce that momentum, in my view.

As a result, since the stock is still undervalued among peers, I will be buying more shares soon.

I also have my eye on some low-priced high-yield stocks at the moment.