Where could the Lloyds share price be in 5 years’ time?

Both fundamental and technical analysis lead Jonathan Smith to conclude the Lloyds share price could be due a move higher — but how high?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The stock market crash of 2020 ended the longest equity bull market in history. As we begin a new economic cycle (likely characterised by a looming recession) it’s worth casting our gaze further out. For example, thinking about where the Lloyds Banking Group (LSE:LLOY) share price could be in five years’ time.

This is important because right now, the Lloyds share price is volatile. The share price was down around 15% last week, compounding a fall of over 50% year to date. But volatility often presents opportunity, especially when you’re buying for the long term.

Fundamental values

A good starting point is looking at some fundamental measures of the worth of Lloyds. One metric I like to use is the price-to-book ratio. This measures the market value versus the book value of a company. The market value is simply what investors think the company is worth, whereas the book value is a tangible number that shows the net asset value. In theory, the ratio should be one, in that the actual value of the business is the same as investors’ perception of it. Yet it doesn’t always happen like this in real life. 

For Lloyds, the ratio is 0.52. This means the share price reflects only half the actual value of the net assets for the business! Now you can argue that with bad debt and loan defaults from the pandemic, liabilities will likely increase for the bank. But is the business really worth half the net asset value? I think not. 

So using fundamental analysis, I’d say in five years time the Lloyds share price should move closer to a 1-to-1 ratio. If the net assets stay the same, then this would see the share price double to around 65p. 

Technical analysis

The other side of the coin when trying to predict share price movements we have technical studies. These look more into charting and past price patterns when trying to predict where a share price will be in five years time. A good example is the Relative Strength Index (RSI). It measures how overbought or oversold a share price is from past prices. It’s a scale from 0-100, but anything below 30 is oversold, and above 70 overbought. 

The Lloyds share price reached the lowest RSI level in years back in the middle of March when it hit 18. It has recovered a bit back up to the mid 30s, but still a long way off from a middle-of-the-range reading. By comparison, the last RSI reading of 50 (fair value) was in January, when the share price was around 60p.

From this we can conclude that if the technicals return to a fair value level over the next five years, then this should put the share price back at circa 60p.

Lloyds share price, buy now?

So if fundamentals suggest around 65p is a fair price, with technicals not far behind at 60p, should I buy more now? Well it does look attractive from my point of view. Buying at current levels just over 31p could be a solid longer-term play, reaping large profits for shrewd investors.

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.

Jonathan Smith owns shares in 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Do record revenues and profits mean investors should pay more attention to the Halma share price?

A P/E ratio of 37 might put some investors off the Halma share price without a second look. But impressive…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

As BAE Systems’ share price heads towards £14, is there any value left in it?

BAE Systems’ share price has soared since Russia invaded Ukraine, but it still looks very undervalued and has great growth…

Read more »

Bronze bull and bear figurines
Investing Articles

Which is the better bank buy right now: Lloyds shares or HSBC?

HSBC pays a much higher yield than Lloyds shares, has much more value left in its share price, and doesn't…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

At 231p, is there value in the Legal & General share price? Here’s what the charts say!

Here, this Fool delves deeper into Legal & General to see if its current share price is the bargain it…

Read more »

Investing Articles

3 diverse FTSE stocks I’d consider buying to invest in Asia

This trio of FTSE shares could be the perfect way to invest in the fast-growing economies of Asia over the…

Read more »

many happy international football fans watching tv
Investing Articles

6.4% yield! Is ITV a dividend stock to consider buying during the Euros?

Our writer takes a look at ITV and assesses whether the FTSE 250 dividend stock might be a good fit…

Read more »

Illustration of flames over a black background
Investing Articles

Up 915% in a decade! This growth monster may also be the best FTSE income stock of the lot

Harvey Jones has been watching this top FTSE 100 growth and income stock for months and now he's found another…

Read more »

Investing Articles

The tax-free route to millionaire portfolios

• Although annual ISA subscriptions are capped, ISAs are an undoubtedly serious wealth-building tool: you can build serious wealth.

Read more »