BP (LSE: BP) shares are trading near their 31 March one-year high of £6.09. And the last time this was reached was in April 2010. To many, this may suggest there is little or no value left in the stock. But this is conflating two separate measures when it comes to shares — price and value.

Price is just a function of supply and demand that changes constantly. But value reflects the enduring fundamentals of the underlying business. So in fact, a share may have rocketed in price, but there could still be enormous value left in it. Does this apply to BP?

Is it undervalued?

A good starting point to ascertain value is comparing a stock’s key metrics with those of its competitors. In BP’s case, to begin with, it is still bottom of its peer group on the key price-to-sales measure. Its 0.6 rating is way behind its competitors’ average of 2.2. These firms comprise Shell at 0.9, ExxonMobil at 1.9, Chevron at 2, and Saudi Aramco at 3.9.

So it is indeed significantly undervalued on this measure, despite the recent share price surge. It also looks a bargain on its 2.2 price-to-book ratio against its peer group’s average of 2.6.

Where ‘should’ the shares be priced?

Discounted cash flow (DCF) analysis identifies the price at which any share should trade (its ‘fair value’). It does this by projecting future cash flows and ‘discounting’ them back to today. The more uncertain earnings forecasts are, the higher the return investors demand and the greater the discount applied.

Analysts’ DCF modelling varies — some more bullish than mine, others more cautious — depending on the variables used. However, my DCF modelling — including a 7.3% discount rate — shows BP shares are 59% undervalued at their current £5.73 price. This implies that BP’s fair value could secretly be around £13.98 — more than double where the stock trades today.

Asset prices typically gravitate towards their fair value in the long run. So this suggests a potentially terrific buying opportunity to consider today if that modelling proves accurate.

Supported by business fundamentals?

A risk for BP is any extended bearish trend in oil and gas prices, which could squeeze its margins. Another is a failure in any of its major energy‑transition projects. This could pressure free cash flow if returns take longer than expected to materialise.

Nevertheless, analysts forecast BP’s earnings will grow by a whopping yearly average of 21% to end-2028, at minimum.

The most recent trading update (Q1 2026) saw underlying replacement cost profit soar 132% year on year to $3.2bn (£2.4bn), driven by higher realised margins and an exceptional oil trading contribution.

Operating cash flow increased 1% to $2.9bn. The huge number reflected the group’s ability to keep generating cash even after setting aside $6bn for short‑term working capital.

My investment view

Despite BP shares trading near a 16‑year high, the stock still looks deeply undervalued on both peer comparison and discounted‑cash‑flow measures.

The latest trading update shows clear earnings momentum building, with stronger margins, higher realisations and an exceptional oil‑trading result all pointing to a firmer profit outlook. Taken together, this combination of undervaluation and improving fundamentals is why I am looking to buy more shares as soon as possible.