After record profits, is the Barclays share price a bargain not to be missed?

The Barclays share price has surpassed its pre-Covid levels after reporting excellent full-year results. Is there now further to rise?

| 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.

View of Canary Wharf

Image source: Getty Images.

The Barclays (LSE: BARC) share price has completely recovered from the stock market crash in 2020 and is now higher than its pre-Covid price. This is not surprising, especially considering annual profits reached a record high in 2021. This indicates that there may be further to rise. On the other hand, due to the current geopolitical tensions in Eastern Europe, and the consequent risks of economic shocks, there are equally risks that must be considered.

Recent results

Barclays’ full-year 2021 results were excellent across the board. For example, profit before tax reached £8.4bn, which was almost treble the £3.1bn achieved in 2020. Such a strong performance was enabled by the bank’s diversified business model. For instance, the Corporate and Investment Bank segment saw a profit before tax of £5.8bn. This highlights how the business model extends far beyond just its lending business, a factor that differentiates it from many other banks.

The strong results have also enabled the company to adopt a generous capital returns programme. This includes a share buyback programme of £1bn and a final dividend of 4p per share. As such, at the current Barclays share price, the dividend yields around 3.7%. This is in line with other FTSE 100 stocks and is certainly a strong reason to buy the shares. The share buyback programme should also have a positive effect on the share price.

Some risks

The current geopolitical tension in Eastern Europe is likely to have some negative effects for Barclays, especially as it’s a global bank. This is a reason why the Barclays share price fell around 9% last Thursday. The recent news that many Russian banks will be excluded from Swift, which is pivotal for the smooth transaction of money worldwide, could affect Barclays indirectly.

I’m also worried that the company’s strong investment bank performance may not be repeated next year. This is because capital markets were extremely active in 2021, with many initial public offerings (IPOs). As Barclays often acts as the underwriter in these IPOs, this large amount of activity benefited it greatly. As such, if there is a lower amount of capital markets activity in 2022, which certainly seems likely, Barclays may suffer. Lower profits are the likely result.

Is there room for the Barclays share price to rise?

After the bank’s recent results, the Barclays share price currently has a price-to-earnings ratio of around 5. This indicates to me that the shares are severely undervalued, and a drop in profitability for 2022 is already factored in.

It means I am continuing to buy Barclays shares for my portfolio as I think they are keenly priced at present. The current macroeconomic environment is also far more stable than during the peak of the pandemic, and interest rate rises could aid the bank’s profitability. Therefore, I’m willing to disregard the risks and buy more Barclays shares now.

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 considered so you should consider taking independent financial advice.

Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays. 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

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Are Warren Buffett and Michael Burry preparing for a stock market crash?

Warren Buffett has been holding off investing and Michael Burry has been selling stocks. Is this a sign that they’re…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

3 reasons why Rolls-Royce shares could be a big winner in 2023 

Rolls-Royce shares are up 12% since May 2022. And I think recent developments could propel the engineering firm to new…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Rolls-Royce’s share price is recovering! Time to buy?

Rolls-Royce's share price has clawed back ground after plunging earlier this month. Should I buy the FTSE 100 firm on…

Read more »

Happy couple showing relief at news
Investing Articles

I’d buy this FTSE stock to boost my passive income stream for years to come!

Jabran Khan is looking for stocks to boost his passive income and dissects one FTSE stock he currently likes.

Read more »

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

Darktrace share price soars 20% on takeover news! Who could be next?

Takeover talks are in the air. Our writer considers several potential takeover targets following the Darktrace share price jump.

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Here’s 1 growth stock I like for long-term growth and returns!

Jabran Khan delves deeper into a growth stock he is considering for his holdings to boost returns now and in…

Read more »

Road trip. Father and son travelling together by car
Investing Articles

This FTSE 100 stock could be perfect for dividends and growth!

This Fool is looking to boost his passive income stream with stocks that have growth prospects. Here’s one FTSE 100…

Read more »

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Should I be buying IAG shares today?

Since IAG reported its H1 results, its share price has been stagnant. So, should I buy its stock now to…

Read more »