Shell’s (LSE: SHEL) share price has dropped 17% from its 13 Might 12-month traded excessive of £29.56.

Such a fall may flag that an organization is essentially value lower than it was earlier than. Or it might sign a bargain-buying alternative available.

To seek out out which it’s right here, I ran the important thing numbers and seemed extra intently on the enterprise.

How does the enterprise look?

Its Q1 outcomes on 2 Might, which confirmed adjusted earnings of $5.6bn (£4.22bn). This was 27% decrease than Q1 2024’s $7.7bn, largely reflecting the drop within the benchmark oil price over the interval. Nevertheless, it did beat consensus analysts’ forecasts for $4.96bn.

Constructive as nicely was the announcement of one other share buyback, which tends to help long-term inventory price rises. This might be for $3.5bn of shares over the following three months. It marks the 14th consecutive quarter of share buybacks for the agency, every value at the very least $3bn.

The agency additionally highlighted the completion of its Pavilion Vitality acquisition. This may add vital new liquefied pure gasoline (LNG) enterprise to Shell, in addition to additional regasification capability and delivery property.

Shell is already a frontrunner within the LNG subject, which it forecasts will see a 60% enhance in demand by 2040. Nevertheless it plans to extend its gross sales of the gasoline by 4%-5% — and manufacturing by 1% — a yr within the subsequent 5 years.

A threat right here is that this development doesn’t happen as predicted. One other is that oil and pure gasoline costs stay bearish for an prolonged interval.

Nevertheless, analysts forecast that Shell’s earnings will develop 10.3% a yr to the top of 2027. Finally, will increase right here energy a agency’s share price (and dividends) over time.

How does the share price look?

Shell appears to be like very undervalued at its 0.7 price-to-sales ratio in comparison with its rivals’ common of two.2. The companies are Chevron at 1.2, ExxonMobil at 1.3, ConocoPhillips at 2, and Saudi Aramco at 3.3.

It additionally appears to be like undervalued on its price-to-book ratio of 1.1 in opposition to its peer group common of two.3.

To pinpoint what these imply for its share price, I ran a reduced money circulation (DCF) analysis. This exhibits Shell is 63% undervalued at its current price of £24.90.

Subsequently, the honest worth for the shares is £66.43, though market forces may transfer them decrease or increased.

Will I purchase the shares?

I have already got shares in Shell, primarily based on its sturdy earnings development potential. I additionally suppose that many traders don’t admire a few key info in regards to the power transition.

The primary is that Shell will play a key half in that transfer from fossil fuels to cleaner power.

The second is that this transition is prone to take rather a lot longer than generally thought. President Donald Trump has began the method to withdraw the US from the Paris Settlement on local weather change. In the meantime, China goals to realize internet zero solely by 2060 and India by 2070.

On condition that these elements are nonetheless in play, I’ll purchase extra Shell shares very quickly.