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The Lloyds share price drops 15% since June. Time to buy?

A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

Anyone enjoying the excitement of roller-coaster rides could experience the thrills and spills of being a Lloyds Banking Group (LSE: LLOY) shareholder. Since late 2019, the Lloyds share price has oscillated as wildly as any white-knuckle ride at Thorpe Park.

The Lloyds share price slumps and jumps

Over the past five years, the Lloyds share price has rarely held above the 72p mark. For example, in late May 2017, the price briefly closed over 73p, before falling back. At end-2019, before coronavirus went global, the shares closed the year at 62.5p. At its 2020 peak, weeks before Covid-19 crashed global stock markets, LLOY hit an intra-day high of 63.84p.

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But then came the crash peaking on ‘Meltdown Monday’ (23 March 2020), when stock prices collapsed globally. And as investors braced themselves for the deepest recession in modern history, the Lloyds share price almost imploded. After plunging below 28p in April and May, it went on to hit a lifetime low in the autumn. On 22 September 2020, it slumped to an intra-day low of 23.58p — a price almost unimaginable just 12 months earlier.

On 30 October, just before Halloween, the Lloyds share price closed at 28.03p. But then came ‘Vaccine Monday’ (9 November 2020), when news of highly effective Covid-19 vaccines set stocks alight. Lloyds’ stock promptly went on to almost double, soaring to hit its 2021 intra-day peak of 50.56p on 1 June. That’s a return of more than four-fifths (80.4%) in seven months — not bad for a ‘boring’ value stock.

Why I’d buy today

Since peaking in early June, the Lloyds share price has retreated recently. LLOY is down 3% over five days, 8.5% over one month and 13% over three months. Of course, there is often a summer lull when London share prices wilt during the hottest months. But the Black Horse bank’s shares have suffered more than most during this summer slump.

I don’t own Lloyds stock today, but I would happily buy at the current share price of 42.5p. This values the entire group at a mere £30.2bn. For me, this is a very reasonable price tag to buy a leading UK bank with 65,000 workers and 30 million customers. Furthermore, Lloyds comes with a long history. LBG was created in January 2009, following a ‘shotgun wedding’ between Lloyds Bank and the former HBOS group. However, the group’s heritage goes all the way back to 1695, when the Bank of Scotland (my employer from 1999/2002) was founded. For this price, I could also acquire 13 leading UK financial brands, including Lloyds Bank, Halifax, Bank of Scotland, Birmingham Midshires, Scottish Widows, and MBNA.

What’s more, with the Lloyds share price’s recent declines, the stock looks pretty cheap to me. LLOY trades on a price-to-earnings ratio of 6.5 and an earnings yield of 15.5%. The dividend — restrained by the regulator but recently resumed — offers a cash yield of 2.9% a year. That’s almost a percentage point lower than the FTSE 100’s dividend yield, but could well rise over time. So, yes, with cheap funding, I would certainly buy all of Lloyds to run for my personal enrichment. Thus, this means that I’d also be happy to buy LLOY and own a small part of the bank.

I might well regret this buying decision if the global economy cools, more lockdowns are imposed, or interest rates fall as these are all major risks for Lloyds. But I’d happily join the Lloyds shareholder register today!

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Cliffdarcy 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.

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