April 19, 2011 | In: Energy
Is BP Undervalued?
I have analyzed the price of BP a while ago, and I concluded that a fair price for this stock is around $44, when crude (NYMEX) is around $80 (BP’s stock is directly related to crude price). But now crude is trading at $107, and BP is trading at $44.76. I think it’s very clear that BP, at this price, is well below its real value. So what is its real (and fair) value?
Well, by applying a simple mathematical formula we get the real price = (44 x 107)/80 = $58.85. Obviously, the stock is way undervalued, trading more than $14 below its real value. I think there is no better time to buy this stock, even if crude drops to around $90. In fact, if crude does drop to $90 (which is highly unlikely because of the huge inflation we are facing), then a fair price of this stock would be: $49.50. Still $5 above its current value.
What are you waiting for? Buy BP!