eyeQ: are Shell shares now overvalued?
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to analyse macro conditions and generate actionable trading signals. This is the view on this popular oil major.
2nd May 2024 10:35
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Shell
Trading signal: long-term strategic model
Model value: 2,759.37p
Fair Value Gap: +3.62% premium to model value
Model relevance: 68%
Data correct as at 2 May 2024. Please click glossary for explanation of terms.
Treading water
Shell (LSE:SHEL)’s earnings are out – profits were stronger and share buybacks were maintained. That prompted an immediate 1.5% gain in the share price.
While earnings are important, so too is the big picture. A macro relevance score of 68% on the eyeQ smart machine (how confident we are in our model value) means factors like commodity prices, shifts in currency markets and the Bank of England are critical as well.
Right now, Shell is modestly expensive to macro conditions. But the bigger takeaway from the graph below is macro momentum itself. After a rough start to the year, eyeQ’s model value for Shell has risen strongly in 2024.
Until now.
Since mid-April, model value has done nothing. This could simply be a period of consolidation – a pause that refreshes the bull move. Or it could signal exhaustion and a deterioration in the macro environment.
Watching for the next trend in overall macro conditions is vital. It will be as important as company earnings. It’s important for passive investors too. If you’re buying an exchange-traded fund (ETF) tracking the FTSE 100, remember Shell is the biggest weight in the index at 9.1%.
Whether you’re an active stock picker or a passive index tracker, macro matters.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long-Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
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