The Lloyds share price could be primed for take-off. Is it time to buy?

In this article, Stephen Bhasera explains why some analysts believe that the Lloyds share price is due for a major spike and says whether he’d buy today.

| 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 Lloyds (LSE: LLOY) share price has been perennially disappointing for investors. The stock has underperformed over the last five years. However, year to date, the Lloyds share price is actually up 31.5%. This has inspired an already die-hard and resilient cohort of investors to stick it out for a bit longer. But an improved performance on the stock market right now is not the only thing that has investors believing the next few months could be better for Lloyds. So could this be a great moment for me to tap into a potentially lucrative upswing in the fortunes of this stock?

A potential catalyst event

Deutsche Bank analysts have described Lloyds’ upcoming full-year earnings report as a “potential catalyst event”. This means that the share price could get a boost. In fact, Deutsche Bank went one step further stating that it is anticipating “financial targets above consensus and above other UK banks”. The full annual report, which will come out on 24 February, is therefore cause for lots of anticipation.

In the same vein, it is expected that Lloyds will announce a £1bn share buyback and a 1.5p-2.07p dividend. If that materialises it will mean an annual dividend yield of 8%-9%, which is handsome reward for investors who got a 0.67p dividend in 2021. Even if this does not happen though, it is looking very likely that Lloyds will post very strong numbers next Thursday. 

A strong year

The company has delivered with its performance so far for 2021/22. After nine months, net income was sitting at a healthy £11.6bn, which is 8% higher than at the end of the previous year’s Q3. Come next Thursday, this is expected to translate to just under £7bn of net profit. This would significantly outstrip any net income the company has produced in the last five years. To me, it would also justify the 60p price target that some analysts are placing on the stock. At the time of writing, the Lloyds share price is 51p. This is why I think that it may be a very opportune time for me to buy this stock, in the short term. Long term though, I am aware that the rise of Fintech banks such as Wise, which went public in July last year, threatens to disrupt already inconsistent returns on traditional banks such as Lloyds.

Still undervalued 

The Lloyds share price is undervalued right now, with a forward P/E ratio of just 7.82. Were it not for the chronic underperformance of this stock over the past few years, it would be a no brainer for me. It must be mentioned though that Lloyds has been operating in a very low-interest-rate environment. Interest rates were as low as 0.1% to stave off the effects of the pandemic. With inflation above 5% now though, the Bank of England will have to raise rates. Perhaps the Lloyds share price will finally realise the potential that its earnings suggest. For me, the long-term risks still outweigh the benefits. I will be keeping a close eye on this one for now but not buying. I want to see how the downsides play out.

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.

Stephen Bhasera 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.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »