Woodside Petroleum Ltd (ASX: WPL) shares have not had a good year. Backtrack to the dawn of 2020, and Woodside shares were flying high, going for around $36 a share. But 2020 has ravaged the oil industry, and Woodside is the ASX’s largest pureplay oil company. Between January and March, Woodside shares went from more than $36 to a low of $14.93 – a level that the company hadn’t seen since 2004.
Today, Woodside has recovered somewhat but is still trading for $21.69 at the time of writing. Even at this share price, you’d have to go back to 2005 or so to find another period of similar valuation.
Black gold no more
So why is this company at multi-decade lows? Well, it’s all about the oil. Woodside is a commodity company – it digs and drills oil out of the ground. Like most commodity companies (and unlike most other companies), Woodside has no say in what it is able to sell its product for. Oil prices are set by a homogenous global market, and no matter how ‘good’ Woodside’s oil is, it’s always going to have to accept what the market is willing to pay.
And oil has had a shocker of a 2020. Remember, back in 2018, West Texas Intermediate (WTI) crude was as high as US$75 a barrel. In January this year, WTI was going for roughly US$60 a barrel. Today, WTI is going for around US$40 a barrel, the level it has seemed to settle at since June. Back in April, the WTI oil price actually went negative for the first time in history, albeit briefly.
Simply put, this has been disastrous for the companies that produce oil like Woodside, and likely explains why the Woodside share price is still at historical lows.
Is Woodside a buy today?
However, with low prices often comes attention from value investors. We still need oil after all, whether it’s for our cars and transport, our plastics or our roads.
One broker who is extremely bullish on Woodside today is Goldman Sachs. You could even say Goldman is rating Woodside as a ‘screaming buy’ given it has a price target of $31 on Woodside shares presently. That implies a potential upside of 42% on the current share price, not including any potential dividend returns as well.
Goldman notes that Woodside’s liquidity and balance sheet remain “resilient” and tells investors that Woodside is “cheaper than its peers. trading on a ~12% free cash flow yield” right now.