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Are you tempted by the 20% fall in the Lloyds share price? Here’s what you need to know

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In the last five years, the Lloyds (LSE: LLOY) share price has fallen by around 20%. Clearly, that’s a disappointing performance, and suggests that the company has experienced a difficult period.

While that may be true in one sense, with the prospects for the UK economy being uncertain, the bank has been able to deliver improved financial and operational performance. And with its shares now trading on a relatively low valuation, it could be worth buying alongside another cheap stock that released upbeat results on Tuesday.

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Improving outlook

The company in question is retail stock Halfords (LSE: HFD). It released a 20-week trading update which showed a solid performance despite a tough operating environment. Its like-for-like (LFL) sales increased by 2.8%, with its motoring sales rising by 3.8%. They were driven by growth in fitting services, car cleaning products and staycation-related products. Cycling sales moved 0.8% higher, with poor weather hurting their performance.

The company’s Autocentres recorded 4% sales growth, with operational improvements continuing to boost the division’s outlook. Due to this, the overall prospects for the company are relatively upbeat, with it being on track to meet guidance for the full year.

With Halfords due to record a rise in earnings of 8% in the next financial year, its performance looks set to improve. Despite this, the company trades on a price-to-earnings growth (PEG) ratio of just 1.4. This suggests that after a share price fall of around a third in the last three years, the stock could offer good value for money. Over the long run, it could prove to be a sound turnaround opportunity.

Recovery potential

The prospects for the Lloyds share price may also be relatively impressive. As mentioned, the company has been able to deliver improving operational performance, with reduced costs and higher levels of profitability being recorded in recent years. And while the UK economy is forecast to experience further difficulties in the near term, the bank is expected to deliver further profit growth in the next two financial years.

Having fallen heavily in the last five years, the bank now has a price-to-earnings (P/E) ratio of around 9. Although this could potentially move lower if investors become increasingly nervous about the Brexit process, it could represent a value-investing opportunity for the long term. At the present time, the stock is perhaps one of the most unloved shares in the FTSE 100. This could therefore make it the right time to buy for investors who are able to cope with volatility in the short run.

With Lloyds set to yield over 5% this year, it could offer stronger total returns in the next couple of years than investors are currently anticipating. While it may not be the most exciting stock in the FTSE 100 in terms of its forecast growth rate and business model, its risk/reward ratio appears to be compelling.

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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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