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Here’s why the Lloyds share price could touch 100p

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

This sounds like a strange title, considering that the Lloyds Bank (LSE: LLOY) share price has been making sideways movements for almost five months. But if we look at its longer-term share price trend the picture looks far more positive. 

Since the start of this year, the Lloyds share price has risen by almost 40%. This in itself is encouraging. But if we consider its share price increase over the past year, it is an even higher level of around 70%! 

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Now, the increase in the last 12 months is an outlier. At this time last year, investor confidence was at a low. Vaccines were not available. And banks, which are closely linked to economic conditions, were in a particularly bad place. The FTSE 100 bank’s share price had halved by late October last year from its pre-pandemic levels. 

Forecasting the Lloyds share price

So why am asking if the Lloyds share price can double now? That is because in my assessment, it is still priced quite low compared to where it can be. I worked on a simple scenario to figure out if this is indeed possible. 

Here goes. The FTSE 100 has picked up in the past week or so. As a result, it is now at around pre-pandemic levels. But the Lloyds Bank share price is lagging behind for now. Many other stocks have moved past their pre-pandemic levels as well, which can make the bank look particularly attractive. I think there is at least 10% upside to the stock based only on this, which would take it back up to its February 2020 levels. 

This is especially so as its earnings are expected to be significantly improved from both 2019 and 2020. Further, if the authorities now also allow banks to decide their own dividend levels, that could make the stock rally. So far, this has been withheld given banks’ linkages with the rest of the economy. 

Forecast price for the FTSE 100 stock

Of course it is possible that Lloyds Bank might decide to still withhold from paying the high dividends it did in the past. But if it does go back to those levels, I think it is reasonable to expect that its price-to-earnings (P/E) ratio could rise close to the FTSE 100 average of 15 times. Or even its own 2019 P/E of around 17 times.

And this is where things get interesting. Based on consensus earnings forecasts, with a P/E in the mid-teens, the bank’s share price could rise to around 120p over the next few months. That is more than double its current levels!

What I’d do

For this to happen though, the consensus forecasts need to be accurate. These can be subject to changes based on evolving situations. Also, the market mood has to remain buoyant and banks have to be allowed to set their own dividends, which then need to go back to earlier levels. 

There are a lot of ifs here. But they are all completely plausible. I am not rushing in to buy Lloyds Bank yet, but I am waiting optimistically, to see how things play out. 

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Manika Premsingh 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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