PAIMIO, FINLAND - JULY 1, 2016: Royal Dutch Shell plc, commonly known as Shell, fuel truck hauls jet fuel along freeway on a sunny day if summer. The ADR code 30-1863 signifies aviation fuel.
The Royal Dutch Shell share price has a mixed performance in August. The RDSA and RDSB stock initially dropped by more than 7.67% from its highest level in the month to 1,370p. It then bounced back to the current level of 1,442p. In the same period, the price of crude oil rose from $64 to more than $70.
Fundamentally speaking, things have been going on well for Royal Dutch Shell, one of the most profitable oil supermajors. The company has boosted its profitability in the first half of the year and announced several dividend increases.
In addition, the firm has slashed most of its costs and narrowed its business by shedding some of its key unprofitable businesses. Further, analysts believe that the company has some of the biggest liquified natural gas (LNG) projects.
Still, while the company has done well, the Shell share price has underperformed the market. For example, while its stock has risen by about 14% this year, the Vanguard Energy ETF has risen by more than 40% this year. Companies like ExxonMobil and Chevron have seen their shares jump by more than 30% this year.
The RDSA and RDSB share prices have lagged because of the ongoing pressure by activists about climate change. Two months ago, a court in the Netherlands directed Shell to lower its carbon emissions by almost 50% by 2030. As a result, the company, together with BP, have invested millions of dollars in clean energy projects.
As such, the underperformance of the stock is likely because investors expect minimal returns from these investments.
Meanwhile, the Shell share price is relatively cheap. For example, a DCF calculation by SimplyWallSt shows that the shares are undervalued by more than 30%. Similarly, key multiple comparisons like the price-to-earnings, price-to-sales, and EV to EBITDA shows that the stock is relatively cheap.
Analysts are also positive about the company’s stock. The consensus rating for the stock is buy, according to data compiled by Marketbeat. Those at RBC Capital Market expect the shares to rise by more than 50% to 2,200p while those at UBS expect it to rise to 1,860p. Similarly, those at Goldman Sachs and JP Morgan see it rising to 2,200p.
The daily chart shows that the RDSB shares have been in a relatively tight range recently. The stock is trading at 1,440p, which is substantially above the key support at 1,225p. At the same time, the shares have moved above the key support at 25-day and 50-day moving averages.
Therefore, there is a likelihood that the stock will keep rising as bulls target the key resistance at 1,521p, which is the highest level this year. On the flip side, a drop below 1,360p will invalidate this view.