Royal Dutch Shell share price is down 45% YTD: Is it time to buy?

Royal Dutch Shell share price dropped by more than 1.45%, becoming among the worst-performing companies in the FTSE 100. The company’s share price is trading at 14.65p, which is down from this month’s high of 17.72p. Shell is not the only energy company in trouble today. BP share price has dropped by more than 1.52% while other energy firms have also declined.

Royal Dutch Shell news sends shockwaves

A few months ago, Royal Dutch Shell surprised the market when it slashed its dividends for the first time since second world war. At the time, crude oil price was at a historic low. By slashing dividends, Shell became the first oil supermajor to do so in decades.

Royal Dutch Shell share price is down today after the company released major news that sent shockwaves in the energy market. It announced that it would slash at least $22 billion of the value of its assets because of the recent plunge in prices and the overall weakness brought by the coronavirus pandemic.

Royal Dutch Shell is not the first supermajor to announce impairment charges. Earlier this month, BP announced that it was slashing its assets by more than $17.5 billion.

In the announcement today, Shell said that it expects the price of Brent to be about $50 a barrel in the next two years. That is less than the $60 a barrel that it had guided before. Still, the biggest hit will come from its gas business, which will be hit by between $8-9 billion.

Is Royal Dutch Shell share price a buy?

It’s no doubt that Royal Dutch Shell share price has been a major disappointment this year. Down by more than 45%, it has underperformed the FTSE 100, which has declined by just 18%. It has also lagged behind BP, whose share price has declined by 36%. This is partly because BP has maintained its dividend and made asset sales. Just yesterday, the firm announced that it was exiting the petrochemical industry.

So, is Royal Dutch Shell share price a buy at the current level? The simple answer is that it is complicated. From a valuation stand point, Shell’s market capitalisation of more than £101 billion seems reasonable based on the company’s market share in the oil and gas sector. The same is true with its PE ratio of about 7x.

However, the reality is that Royal Dutch Shell is in a difficult industry with a complicated path to recovery. For example, while crude oil price has been recovering, the fact is that this recovery is in peril as more coronavirus cases in the United States rise. Also, the decision by Europe to bar American flights mean that the aviation industry will take a longer duration to recover.

At the same time, Royal Dutch Shell is highly indebted. It has almost £100 billion of long-term an short term debt, according to HL. This is against having about £18 billion of cash in hand and falling revenue.

Therefore, if you want growth, I recommend staying away from Royal Dutch Shell and other energy sectors. Consider the statement below by Jim Cramer.

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Royal Dutch Shell share price analysis

On the daily chart, we see that Royal Dutch Shell share price reached a YTD low of 10.50p in March. The price then attempted to rebound but it found a strong resistance above the 38.2% Fibonacci Retracement level. Since then, it has been in a downward trend and is below the 50-day and 100-day exponential moving averages. This means that the price may continue falling as bears target the next resistance at 14.00p. On the other hand, a move above the 50-day EMA at above 16.00p will invalidate the downward trend.

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