After reaching a 52-week high of around 50p at the end of May, the Lloyds (LSE: LLOY) share price has been on the back foot.
Since the end of May, shares in the company have declined by around 8%, excluding dividends. Over the past 12 months, the stock has increased in value by 54%, excluding dividends.
Over the past year, I’ve covered Lloyds many times, and every time I’ve concluded that the bank could be a recovery play.
As such, with the stock getting cheaper, I think it’s starting to look more appealing. But before I rush to buy the shares, I need to establish why the stock is falling in the first place.
Lloyds share price outlook
Over the past few days, there have been a couple of pieces of news related to the bank that have caught my attention. First of all, earlier this week, economic data showed house price growth across the country is slowing.
As one of the country’s largest mortgage lenders, this could hurt Lloyds’ income and balance sheet. Falling property prices may lead buyers and sellers to put off purchases. This could reduce demand for mortgages, robbing the bank of highly lucrative fees.
A day or two later, the bank was fined £91m for misleading insurance customers. The group reportedly told millions of insurance customers between 2009 and 2017 that the renewal price on their policies was “competitive.” In fact, customers could have achieved a better deal elsewhere. The Lloyds share price dipped on this news because it’s a reputational issue for the business. If customers know the company has a history of ripping them off, they’ll shy away from buy its products.
Finally, last week, Lloyds also announced it was getting into the private rental market. It aims to acquire 1,000 properties under the brand ‘Citra Living’ by the end of next year.
This in itself isn’t particularly bad news, but it does show the company is struggling to earn returns in its traditional banking market. It also opens the group to mistakes in a market in which it has no experience.
The expansion into rental properties could provide a steady income stream for the group, which would be the best outcome. But it could also lead to expensive errors.
The bank already faces an uncertain economic outlook. That seems to be why the Lloyds share price has been under pressure over the past 12 months. All of the above factors only increase the uncertainty surrounding the enterprise.
Still, I think that over the next five or 10 years, the group will almost certainly benefit from economic growth. That will translate into rising profits and returns for investors.
As such, while the Lloyds share price has been falling recently, I’m still a buyer of the stock, considering its long-term potential. Indeed, I’m happy to look past the current pressures the group’s currently facing and focus on its potential over the next few years.
Rupert Hargreaves has no position in any of the shares mentioned. 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.