Down 20% in 5 years, are Centrica shares a no-brainer buy now?

Centrist (LSE: CNA) has been in the news recently, for the wrong reasons. Well, a British Gas unit has hit the headlines after it was told to stop forcing its way in to install pre-payment meters for struggling customers. But high gas prices have been good for investors, with Centrica’s share price up 25% in the past 12 months.

The big question is whether we are seeing a short-term bubble inflated by high energy prices. If so, it can break when inflation can be controlled. And fear for the future of fossil fuels may be contributing to long-term weakness in stock prices.

But I see few reasons to buy Centrica now. One is to look at stock prices in a long-term context.

Before the pandemic, Centrica’s shares continued to fall. Over the past five years, shareholders have seen their investments lose 22% of their value. Earnings have fallen. And the 2019 dividend was reduced due to the pandemic, before being suspended for 2020. But the forecast is rising, and the stock may be undervalued now.

Evaluation

Based on the 2023 forecast, the stock is at a prospective price-to-earnings (P/E) ratio of just four. For companies with important products and defensive characteristics, it may not be cheap.

Looks like the dividend may be coming back. Centrica seems to have money to return to shareholders as it is now buying back its own shares.

The company is due to deliver 2022 results on February 16, and the January update is optimistic. The board expects adjusted earnings per share to be above 30p. This means a P/E of 3.2, in line with forecasts. And with cash generation looking good, there should be more than £1bn of net cash on the balance sheet.

Dividends

There is no indication of a one-year cash return. But forecasts suggest a dividend yield of 3% and rising. This is based on payments that are still below pre-pandemic levels, he thinks.

But all this comes in a year of soaring energy prices. BP and shell just recorded record profits for 2022, as the entire oil and gas sector benefits.

In the medium term, prices will fall, inflation will fall, and the bumper profits of 2022 may not be repeated. And looking further ahead, renewable energy is the inevitable future.

Is it a purchase?

Should I buy Centrica shares today? Considering the prospects for the next few years, I think they look very cheap. And if I can see a long-term future for the gas business, I’ll get the price right now. Perhaps not quite a total no-brainer, but the super low P/E coupled with the improving dividend outlook would make Centrica a buy for me for sure.

But I really don’t see the long-term prospects it needs. In another 10 years, gas could overtake coal as the unwanted way to heat our homes. And if I didn’t hold the stock for 10 years, I wouldn’t buy it. I think I may be missing out on some short-term benefits, though.