Is the dirt-cheap Barclays share price an opportunity or a value trap?

Jabran Khan explores the current state of the Barclays share price and decides whether the shares are an opportunity for his holdings or to be avoided.

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Barclays (LSE:BARC) shares have been on a downward trajectory since the turn of the year. At current levels, the Barclays share price looks dirt-cheap. But is it a value trap or an opportunity for me to add cheap shares to my holdings? Let’s take a closer look.

Barclays share price woes in 2022

As I write, Barclays shares are trading for 145p. At this time last year, the shares were trading for 186p, which is a 22% decline over a 12-month period.

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Looking back at a closer time frame, Barclays shares have lost over 30% since the middle of January. The shares were trading for 216p on January 14, compared to current levels.

I believe the recent stock market correction has contributed to the Barclays share price falling. There have been other factors at play recently too.

Recent events and current state of play

In March, Barclays discovered and disclosed that it issued securities exceeding the amount it registered with the Securities and Exchange Commission (SEC). The amount it exceeded by was not small either, $15.2bn to be exact. The consequence of this is that the bank must purchase back these securities and it will cost the bank just less than £500m in expenses. In addition to this, this type of error can potentially trigger regulatory fines as well. As a result of the error, Barclays has pushed back a proposed share buyback scheme to at least Q2 of 2022.

I can understand why the Barclays share price has come under pressure. The error would have also dampened investor sentiment. But what about Barclays’ fundamentals? Well, from a liquidity perspective, it has a CET1 ratio of 18.2%. This ratio is a measure introduced in 2014 to protect the economy from financial disaster. Eurozone banks should have a ratio of at least 15.1%. Barclays’ current ratio is better than this. More tellingly, its ratio is higher than its closest competitor, Lloyds.

What about Barclays’ performance? Well, in its most recent set of full-year results released last month, net operating income increased by over 30%. Post-tax profit increased as well as earnings per share. A final dividend of 6p per share was declared, up from 1p per share in 2020.

What I’m doing now

I don’t think the Barclays share price is a value trap based on current levels and recent events. The shares do look cheap on paper with a price-to-earnings ratio of just four. In addition to this, it pays a dividend to potentially help me make a passive income stream as well. Barclays’ dividend yield stands at just over 4%. It is worth noting this is higher than the FTSE 100 average of 3%-4%. I am also buoyed by the most recent set of full-year results.

Would I buy the shares for my holdings right now? No. The reason is that this share error could yet be costly in the longer run and could impact shareholder returns too. I will keep a keen eye on developments the Barclays share price to see what happens. I will keep the shares on my watch list for now.

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Jabran Khan has no position in any shares mentioned. 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.

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.

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