Is There Still Time To Buy Lloyds Banking Group PLC?

Can Lloyds Banking Group PLC (LON: LLOY) move higher, or are the company’s shares overvalued?

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Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) to ascertain if its share price has the potential to push higher.

Current market sentiment

The best place to start assessing whether or not Lloyds’ share price has the potential to push higher, is to take a look at the market’s current opinion towards the bank.

LLOYUnfortunately at present, it would appear that the market is somewhat unpleased with the recent sale of shares in Lloyds by the UK government, which were placed at 5% discount to the bank’s closing price on the day of the announcement . What’s more, some City analysts have raised the possibility that the government could sell the rest of its remaining 25% stake at some point later this year, implying further discounted share placings.

Still, the very fact that the government is selling off its shareholding in Lloyds shows that the bank is well on the way to recovery.

Upcoming catalysts

There are many catalysts coming up for Lloyds’ shares in the near future, the most important of which is the bank’s return to full-profitability during 2014. Indeed, according to City broker, Investec Lloyds is expected to report a profit attributable to shareholders of £3.4bn for 2014, equating to earnings per share of 4.7p. What’s more, City estimates currently forecast the bank’s earnings to jump 47%, to 6.9p per share during 2015.

In addition, Lloyds’ share price should benefit from the resumption of dividend payments to shareholders. Once again, Investec believes that Lloyds will offer a token dividend of 1.5p per share during 2014, rising to 3p per share for 2015.  


As Lloyds’ earnings are set to surge over the next few years, the bank’s shares look extremely cheap compared to expected growth and when the company’s valuation is compared to that of its peers.

In particular, as Lloyds’ is set to report earnings per share of 4.7p for this year, the bank’s shares currently trade at a forward P/E of 16, which at first glance appears expensive. However, Lloyds’ peers within the wider banking sector currently trade at an average P/E of 23, making Lloyds’ look cheap.

Furthermore, Lloyds’ forward P/E does not justify the bank’s high earnings growth rate. Indeed, as earnings per share are expected to surge 47% during 2015, Lloyds’ currently trades at a PEG ratio of 0.3, anything under 1 signals growth at a reasonable price.

Foolish summary

So overall, based on the fact that the bank’s shares currently look cheap when factoring in future growth, I feel that there is still time to buy Lloyds. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert does not own any share mentioned within this article. 

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