The Royal Dutch Shell share price has struggled in the past few days as investors continue worrying about the recent volatility of crude oil prices. The stock is trading at 1,450p, which about 70% below its highest level in 2018. It has risen by less than 20% even after oil prices have jumped by more than 40% this year. It has also lagged other supermajors like ExxonMobil, Chevron, and BP.
Royal Dutch Shell is one of the cheapest oil supermajors in the world. As I wrote two weeks ago, a discounted cash flow (DCF) calculation showed that the stock was about 38.7% undervalued. Other valuation metrics like price-to-earnings, price to sales, and price to cash flow shows that it is significantly cheaper than other oil companies like BP, Chevron, and Exxon.
This valuation also ignores the fact that Shell is one of the most profitable oil companies in the world. The company has had an EBITDA of more than $53.7 billion in the past 12 months. This is more than double that of Total, Exxon, and Chevron.
Analysts point to other catalysts for Shell. In a note by Barrons last week, the magazine said that investors will come to realize how cheap the company’s shares are. Besides, the firm has a wide asset base that includes liquified natural gas and a giant retail sector.
They also noted that the company has one of the biggest dividend yields in the industry. It has a dividend yield of more than 6%, which is higher than that of its peers. Another catalyst the report mentioned would be to break the company up. They cited the fact that the sum of parts would be worth more than 70% from the current level.
The Shell share price has struggled because of the company’s climate pressure. While other fossil fuels companies have faced similar pressures, the company was recently ordered by a Dutch court to cut its emissions by 40% by 2030.
The RDSB share price has been in a tight range recently. The stock is slightly below the key resistance at 1,526p, which was the highest level on March 15. It remains between the channel whose support is at 1,290p. Also, it is slightly above the 25-day and 50-day moving averages. It also seems to have formed an inverted head and shoulders pattern, which is usually a bullish thing.
Therefore, the stock will likely bounce back higher in the coming weeks. If this happens, the next key level to watch is 1,800p. On the flip side, a drop below 1,290p will invalidate this view.