Performance of the Share Prices of BP PLC - Essay Example

Company Analysis Table of Contents Introduction 3 Research aim and objective 3 Aim 3 Research Objective 3 Review of methods 4 Analysis of raw data 4 Technical analysis 4 Share Price Movement 4 Prediction for future performance 11 Moving Average 11 Conclusion and recommendations 14 Reference List 15 Appendix 1: Calculation of range (2010-2013) 16 Appendix 2: Calculation of range (2005-2009) 17 Appendix 3: Calculation of range (2000-2004) 18 Introduction The report highlights the ability to conduct research on a particular area so as to reach a final conclusion. The particular area chosen for this report links to BP share price. BP PLC provides its customers with fuel for transportation, lubricants for their engines, energy for heat and light and petrochemicals products. The company also concentrates on investing money in renewable energy sources. BP PLC is divided into two segments, namely refining and marketing; and exploration and production. It is noticed that the share price of the company has fluctuated over the period of 2000-2013. The reason for this fluctuation is elaborated in the report by considering each year’s share price performance. The raw data available regarding the share price of BP is divided into three parts, considering five years and four years intervals. The data is analysed in order to study the movement of share price during the periods, along with operation of the company. The technical analysis in form of graphical representation of raw data is employed in order to examine movement of shares over the years. The report highlights the main aim of the study, along with three research questions, which describes the aim. Lastly, the report ends with a conclusion and recommendations pertaining to performance of the share price of BP. Research aim and objective Before undertaking a research, realizing the research aim is very important so as to define what the researcher desires to find out. However, the research objective describes the process, which will help in achieving the proposed aim. Aim The main aim of the study is to examine performance of the share prices of BP PLC, over the period of 2000-2013. Share price movement is observed in order to draw a conclusion on performance of the company over the years. Research Objective In order to achieve the proposed aim, the following research questions are formulated: 1) Does the movement in share price of BP specify bull or bear market? 2) Is technical analysis relevant for realising the pattern of future activities of BP shares? 3) Does moving average help in determining the exact trend of price movement of BP shares? Review of methods In order to find answers to the abovementioned research questions, technical analysis has been employed. Technical analysis refers to forecast of financial price movements in the future based on the past data available for a particular stock. The price actions are studied in order to get a clear picture of movement in share prices. The technical analysis helps to determine the share price trend as bullish or bearish and accordingly, future movement of the share is established. It helps to invest money in trade since the analysis provides an idea regarding trend of the market. The movement in share prices is described in form of graphical representation by dividing the raw price data of BP shares into three parts; considering the interval to be 5 - 5 - 4 years. Moving average is also employed in order to check true trend of the shares, after removing the daily fluctuations in price. The moving average takes into account the average price of shares, which helps to ignore huge price movement. Analysis of raw data The share price movement of BP PLC is examined to determine the trend that is reflected. Technical analysis Share Price Movement The figure below elaborates the share price movement of BP PLC from 2010 to 2013. The figure also identifies whether it is possible to get an idea of movement of share prices in the future (Yahoo! Inc., 2014a). Figure 1: Share price movement 2010-2013 (Source: Author’s creation) It can be inferred from the above figure that the share prices follow a bearish trend from 2010 to 2013. During this period, the share price has fluctuated to a great extent, which indicates that the company could not keep its sales stable and thus, it is reflected in the share price (Yahoo! Inc., 2014c). Increase in price of the shares indicates its demand in the market. It is observed that the company has failed to cope up with the demand, thereby leading to such high fluctuations in the price. The highest and lowest adjusted close price was $534 and $273, respectively. The difference in this fluctuation can be defined as range (Callus, 2014). The following figure elaborates the fluctuations in price for the period 2010-2013 by considering the average range (difference between the high and low price) (Refer to Appendix 1 for calculation of range and average range): Figure 2: Fluctuations in 2010-2013 (Source: Author’s Creation) The major fluctuation is observed in 2010, which has resulted from decline in sales of the company. However, 2011 onwards, the fluctuations have reduced till 2013 due to rise in sales of the company. The investors are not attracted to stocks, which encounter changes randomly. Therefore, it can be inferred that the period from 2010 to 2013 has not been a pleasant one for the company as well as the investors. Figure 3: Volume of share (2010-2013) (Source: Author’s creation) The above figure elaborates that during 2010, the company has issued the highest number of shares as compared to latter years. The figure below elaborates the share price movement of BP PLC from 2005 to 2009: Figure 4: Share price movement 2005-2009 (Source: Author’s creation) It can be inferred from the above figure that the share price follows a bullish trend from 2005 to 2009. The price of shares has increased over the five years, which reflect that demand for the company shares was on the higher side during the period. The highest and lowest adjusted close price was $506 and $352, respectively (London Stock Exchange plc., 2014). The fluctuation in the share prices was high compared to the previous years. The following figure elaborates the fluctuations in prices for the period 2005-2009 by considering the average range (difference between the high and low price) (Refer to Appendix 2 for calculation of range and average range): Figure 5: Fluctuations in 2005-2009 (Source: Author’s creation) The major fluctuation is observed from 2005 to 2007 due to lesser demand of the company shares. Even so, the fluctuation has declined in 2008 and 2009 owing to the recovery of market and bullish trend is also observed. Figure 6: Volume of share (2005-2009) (Source: Author’s creation) It is observed from the above figure that the volume of shares issued by the company is highest in 2009. This implies that the market for BP shares has revived after a long time and the investors are interested to spend on these shares. The figure below elaborates the share price movement of BP PLC from 2000 to 2004: Figure 7: Share price movement 2004-2004 (Source: Author’s creation) It can be inferred from the above figure that the share price follows a bullish trend from 2000 to 2004. The price of share has increased over the five years, which reflect that demand for the company shares had increased during the period. The highest and lowest adjusted close price was $372 and $251, respectively (BP p.l.c., 2014). The fluctuation in the share prices was very high. The following figure elaborates the fluctuations in price for the period 2000-2005 by considering the average range (difference between the high and low price) (Refer to Appendix 3 for calculation of range and average range) Figure 8: Fluctuations in 2000-2004 (Source: Author’s creation) The major fluctuation is observed in 2002, since price of the shares had fallen to a great extent. Nevertheless, the fluctuation has lessened after 2002 and price of the shares has revived in the aftermath. Bullish trend was observed and the market for BP shares saw a huge turn around, after 2002. Figure 9: Volume of share (2000-2004) (Source: Author’s creation) The figure above indicates that the company had not issued shares during 2000 and 2001. The primary reason is that there was no demand for the shares among investors. Prediction for future performance From the above discussion, it can be concluded that overall performance of BP shares has been prosperous for the selected time period. Bearish trend was observed after 2010, when the share price was observed to fall to a great extent. However, it can be predicted that the share price will increase in future with the passage of time, when the market recovers from the bearish trend and encounter an increase in demand for the sale of BP shares (Forbes.com LLC., 2014b). Hence, it can be inferred that technical analysis is successful in identifying the type of trend that BP shares had followed, during 2000-2013. This analysis has also enabled the determination of future trend of the market for BP shares. Moving Average Moving average forms an essential part of the technical analysis. It is an indicator, which foregrounds average price of the security over a selected period of time. During the calculation of moving average, mathematical analysis is conducted. Mathematical analysis considers the average value of the security over a period of time. With changes in price of the security, the moving average also gets altered. In general, there are five types of moving averages, namely simple, triangular, exponential, weighted and variable. The moving averages are calculated based on the data series, which includes open, low, high and close price as well as volume of the security. Simple moving averages employ equal weight to the share prices. The exponential and weighted average employs excess weight to the recent prices. The triangular averages consider weight to the prices during a time period. Variable moving averages modify the weight, which is based on volatility of prices. The main aim of interpreting moving average of price is to judge dynamics of the share price movement. The interpretation is very simple to elaborate: if price of the share rises above the moving average, then it indicates a buy signal. In case price of the share falls below the moving average, then the sell signal is indicated. Hence, the indicator provides information to trading systems about the lowest and highest point, when to enter and exit the market (Telegraph Media Group Limited, 2011). Simple moving average is employed in this case so as to study the average movement of the BP share prices, over the last four years (2010 – 2013). Here, the 200 day moving average is compared with BP share prices. Figure 1: 200 day Moving Average Vs BP share (2010-2013) (Source: Yahoo! Inc., 2014b) From the above figure, it is evident that over the four years, the company shares had encountered rise in share prices above the moving average. This signals the time for buying back the shares. Nonetheless, it is observed that during beginning of the third quarter, the company had issued huge volume of shares, since price of the shares had fallen below the moving average line. Similar events are observed during end of 2012 as well as during end of the second quarter in 2013. Figure 1: 200 day Moving average Vs BP share (2013) (Source: Forbes.com LLC., 2014a) The figure elaborates 200 day moving average and share price movement of the company, during 2013. It indicates a bullish trend, since share price of the company has outperformed that of the market. From the above figure, it is observed that the low point of BP share on its 52 week range is $39.5 and the peak is at $45.45. The low and the high point are compared with the last trade on August 2013, which amounts to $42.10. So, it can be inferred that the moving average has helped to determine the exact trend of BP shares. Conclusion and recommendations It can be concluded that the overall performance of BP shares has been noteworthy, over the 14 years. The share price movement has shown bullish trend over time and the company has recovered its position after 2002. The technical analysis reflects that demand for the company shares is quite significant. The comparison between 200 day moving average and the share price of BP reflects that the latter has outperformed the market. The research objectives are successfully explained and elaborated with respect to technical analysis of BP shares. Reference List BP p.l.c., 2014. Share charts. [online] Available at: [Accessed 27 February 2014]. Callus, A., 2014. Analysis - BP back in favour despite spill legacy, Russia doubts. [online] Available at: [Accessed 27 February 2014]. Forbes.com LLC., 2014a. BP Breaks above 200-Day Moving Average - Bullish for BP. [online] Available at: < http://www.forbes.com/sites/energystockchannel/2013/08/28/bp-breaks-above-200-day-moving-average-bullish-for-bp/ > [Accessed 27 February 2014]. Forbes.com LLC., 2014b. January 2016 Options Now Available For BP. [online] Available at: < http://www.forbes.com/sites/stockoptionschannel/2013/09/16/january-2016-options-now-available-for-bp/ > [Accessed 27 February 2014]. London Stock Exchange plc., 2014. BP PLC $0.25. [online] Available at: [Accessed 27 February 2014]. Telegraph Media Group Limited, 2011. BP - Latest Share Price. [online] Available at: [Accessed 27 February 2014]. Yahoo! Inc., 2014a. Historical Prices. [online] Available at: [Accessed 27 February 2014]. Yahoo! Inc., 2014b. Technical Analysis. [online] Available at: [Accessed 27 February 2014]. Yahoo! Inc., 2014c. Income Statement. [online] Available at: [Accessed 27 February 2014]. Appendix 1: Calculation of range (2010-2013) Appendix 2: Calculation of range (2005-2009) Appendix 3: Calculation of range (2000-2004) Read More