If I’d invested £10k in BP shares 2 years ago, here’s what I’d have today

BP (LSE: BP.) Shares rallied at the beginning of the week after news of an unexpected cut in oil production.

OPEC countries announced a reduction in production of about 1 million barrels of oil per day. Naturally, this raises concerns that supply may not keep up with demand.

Stock price history in 2023

Taking a step back, BP shares have been in turmoil since the start of 2023.

After a relatively stable performance in January, early February saw the oil supermajor’s shares rocket from 478p to 560p in a week.

The 17% rise in five trading days reflected the group’s announcement of record profits for 2022.

After holding steady throughout February, the stock fell from 558p down to 479p in mid-March.

The decrease is due to a decrease in the destination and occurrence of climate change abroad.

Since then, BP shares have been on the rise again. As I write, they are trading at around 534p.

How much is my hypothetical investment worth today?

The lowest value of BP in 2021 is 298.

This means that if I had invested £10,000 in BP shares in the middle of the pandemic two years ago, my initial investment would now be worth £17,900.

This yielded 79% with a total profit of £7,900.

Long-term perspective

While that’s a heartening statistic, and a testament to BP’s solid performance in recent years, I refuse to be bogged down by past short-term stock price fluctuations.

After all, my investment strategy is to accumulate wealth by buying and holding quality stocks for the long term.

The truth is, I’m more concerned about BP’s share price in 10, 20, or 30 years.

Of course, it depends a lot on whether I think BP can continue to generate solid financial results.

Is now a good time to buy BP stock?

BP’s profit more than doubled last year to $27.7 billion, representing the best result in the company’s history.

But even if the company’s bumper 2022 performance leads to rapid share price growth, BP stock still looks too cheap to me.

The company’s price-to-earnings (P/E) ratio is estimated to be around 4.5. Meanwhile, friends compete shell‘s P/E ratio is currently around the 7.1 mark.

What’s more, I’m a big fan of BP’s massive cash flow, which has not only been able to generate huge returns for shareholders, but has also given the group room to pay off debt to a level not seen in nearly a decade.

My final verdict

That said, all it will take is a drop in oil prices for BP’s bright outlook to look even gloomier.

Continued dividend growth and buybacks depend on oil prices continuing to rise, which is certainly not guaranteed.

However, I believe that BP’s plans to increase exposure to renewable and low-carbon energy sources will continue to offset these risks in the long term.

As a result, if I had money to spare, I would buy BP shares for my portfolio today with the intention of holding them for the long term.