The Motley Fool

3 reasons why the Lloyds share price could sink!

A Lloyds tech engineer works on the bank's digital platform
Image: Lloyds

Is the Lloyds Banking Group (LSE LLOY) share price too cheap to ignore at current levels? Or is the FTSE 100 stock simply one of those classic investment traps?

Well, the Lloyds share price certainly packs some eye-popping value on paper. For 2021, the bank trades on a forward price-to-earnings (P/E) ratio of just 6 times. Furthermore, at recent prices of 42.6p per share, Lloyds carries a mighty 5.3% dividend yield for 2021.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Despite this cheapness however, I’m still not prepared to buy Lloyds shares. Here are three reasons why I’m steering clear of the bank today.

1) Economic forecasts begin to fall

Britain’s economy was one of the developed world’s star performers in the first half of 2021. It’s a rise that reflected a strong start to the government’s Covid-19 vaccination programme. And it naturally led economists to tip a strong economic rebound for the full year.

However, forecasters have been much more bearish on the economic outlook as supply chain issues weigh and coronavirus rates tick up again. Bank of England chief Andrew Bailey told MPs on Wednesday that the rebound is showing signs of “levelling off.” Predictions like this suggest that Lloyds could face renewed revenues strain and a fresh upswell in bad loans.

2) Will the housing market cool?

The UK housing market has thrived over the past year, in turn lighting a fire under income at major lender Lloyds. I’m of the opinion that the market will remain strong too. Government help for first-time buyers through Help to Buy schemes are set to continue. I think low interest rates will continue too, as the Bank of England will seek to help the economic recovery.

But, of course, there’s always a risk that the housing sector could hit a speedbump. Indeed, data from the Royal Institution of Chartered Surveyors shows that home sales in August fell for a second consecutive month, prompting me to sit back and take note. The steady reintroduction of Stamp Duty and the aforementioned economic slowdown could dent homebuyer interest in the months ahead too.

3) Competition is intensifying

Lloyds’ share price also faces significant long-term uncertainty as the popularity of challenger banks surges.

Digitally-focussed and smaller, more agile operators like Monzo and Revolut are grabbing customers from established operators at a staggering rate. According to the BDO, total lending from these new-age banks leapt 11% in 2020 to a record £143bn. Lloyds will have to invest heavily in its products and their platforms to try and stem the tide.

My verdict on Lloyds’ share price

Fans of the FTSE 100 bank might argue that the Bank of England will raise interest rates in 2022. And this will give the Lloyds share price a boost as it’ll help banks make bigger profits from lending. They also could point to the firm’s strong balance sheet and what this could mean for future dividends.

They could prove me wrong, but I believe the risks to the bank’s bottom line far outweigh these bullish points. And so I’m happy to ignore the Lloyds share price, despite its cheapness.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Royston Wild 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.