The Santos share price is up 27% this year. Is it too late to buy?

Are Santos shares a worthy investment at today’s price?

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Key points

  • Santos shares have soared 27% in 2022 on the back of rising energy prices
  • The Russian war in Ukraine set off a rally in the price of oil and gas as fears mounted that Russia's energy sector would be sanctioned
  • Macquarie thinks Santos shares are significantly undervalued at their current price

The Santos Ltd (ASX: STO) share price has surged in 2022 compared to the S&P/ASX 200 Index (ASX: XJO).

The energy producer’s shares are up 27% in the past six months while the ASX benchmark index has fallen 10%.

Santos slipped into the red today, closing 0.99% lower at $8.02 a share. By comparison, the ASX 200 Index also finished the day down by 1.27% to 6,601 points.

What’s fuelling Santos shares in 2022?

Despite edging lower today, investors have continued to bid up the Santos share price following favourable trading conditions.

The Russian war in Ukraine sparked concerns that heavy-handed sanctions on the Kremlin would drive up energy prices.

And rightly so.

Oil supply has been impacted which has caused the price of Brent Crude to skyrocket above US$120 a barrel.

Before the war, the crucial lifeline of advanced economies was trading at around US$92 a barrel.

Furthermore, inflationary movements, along with potential interest rate hikes, are having a positive effect on energy prices.

It appears this has led to bumper margins for Santos which has prompted some brokers to revise their valuations of the company’s shares.

Is this a buying opportunity?

A number of brokers have recently weighed in on the Santos share price following the company’s latest gas deal.

According to ANZ Share Investing, Macquarie raised its price target by 3% to $10.30 on the energy giant’s shares. Based on the current share price, this implies an upside of 25%.

In addition, the team at Citi added 2.2% to its $8.31 valuation of Santos shares. This is not far off where the company’s shares are trading today.

However, as reported by my Foolish colleague Tristan, Wilson Asset Management (WAM)’s pick of the energy sector is Santos shares.

The fund manager noted the strength of the leadership team in actively managing the company’s extensive portfolio.

In 2022, Santos is hoping to offload between US$2-US$3 billion of assets in de-risking growth projects. This will provide ample firepower on the balance sheet to pursue other investments.

Santos share price summary

While the Santos share price has accelerated this year, this hasn’t been the case over the past 12 months.

Its shares moved mostly in circles after hitting a 52-week low of $5.84 in August. Santos shares are up around 4% for the year.

Santos commands a market capitalisation of roughly $27 billion.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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