Is the Lloyds share price about to explode?

Dylan Hood explains why he thinks the Lloyds share price is poised for growth in 2022.

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The Lloyds (LSE: LLOY) share price has delivered some pretty disappointing growth throughout 2022 so far. Over the past 30 days, the shares have fallen just under 9% and year-to-date the shares are down 8%. However, over the last year, the Lloyds share price has risen 9% and there are a number of reasons why I think the share price could rise even further throughout the next 12 months.

The bull case for the Lloyds share price

There are three main reasons why I think the Lloyds share price could experience some high growth in 2022.

Firstly, house prices have been rising steadily and are currently showing no signs of slowing down. Although interest rates are rising, which means mortgages are becoming more expensive, house prices have kept climbing. Lloyds is the UK’s biggest mortgage lender, so this continued growth should play in Lloyd’s favour.

Secondly, Lloyds has committed to becoming the UK’s biggest private landlord under a new venture named Citra Living. The bank is reportedly trying to buy 10,000 homes by 2025 and 50,000 over the next decade. If the 2025 target is achieved, it would give Citra Living a £4bn portfolio, which is bigger than the UK’s current largest landlord, Grainger, which has a property portfolio worth £2.1bn.

Alongside Citra Living, the bank has announced it is going to start expanding operations back into wealth management and investment banking divisions. This will give the bank more international exposure and add additional sources of profit generation.

The final reason I like the Lloyds share price is due to its valuation. Lloyds currently trades on a price-to-earnings ratio (P/E) of 6.1. This is considerably lower than the FTSE 100 average of 15. In addition to the very low valuation, Lloyds shares boast a healthy 4.3% dividend yield which is again above the FTSE 100 average. These metrics make the Lloyds share price very appealing in my opinion.

Interest rates: a double-edged sword

As mentioned, interest rates aren’t affecting house prices just yet. What the rate hike is doing is allowing Lloyds to charge more on their loans which will help drive up income. However, as rates rise, the economy will retract as people spend less. This could affect Lloyds negatively as it could also pull people away from taking out loans.

Also, with energy prices through the roof, Loyds faces the risk of businesses and households defaulting on mortgage and rent payments. If this is the case, then it could place a lid on the growth of the Lloyds share price.

The verdict

Overall, I think Lloyds shares could be a great addition to my portfolio at the current price. The only worry I have for the shares is how interest rates might affect mortgage demand. However, I think this is offset by low valuations and exciting expansion.

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.

Dylan Hood 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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