Is the cheap Barclays share price a buy with a spare £1,000?

With low P/E ratios, could the Barclays share price be a major opportunity as interest rates increase?

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Key Points

  • Barclays has lower trailing and forward P/E ratios than both Lloyds and HSBC
  • Between 2017 and 2021, profit before tax grew from £3.5bn to £8.4bn
  • With interest rates rising, the bank may be able to charge more for loans and mortgages

As a giant of the banking industry, Barclays (LSE:BARC) is a constituent of the FTSE 100 index. It provides a number of services including retail and investment banking. Currently trading at 146p, the Barclays share price is down 16% in the past year and may be cheap at the moment. Should I now be looking to add this firm to my long-term portfolio with a spare £1,000? Let’s take a closer look.

Is the Barclays share price cheap?

By looking at trailing and forward price-to-earnings (P/E) ratios, I can better understand if a share price is under- or overvalued. 

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These are calculated by dividing the share price by earnings, or forecast earnings for forward P/E ratios.

Barclays has trailing and forward P/E ratios of 3.75 and 5.22. These strike me as very low and may be an indication that the Barclays share price is cheap.

When compared with two major competitors, however, it really does seem to be a bargain at current levels. Lloyds has trailing and forward P/E ratios of 6.11 and 6.79, while HSBC has ratios of 11.24 and 8.99, respectively. 

As a potential shareholder, it is good to know I could be getting shares in a firm that may be undervalued.

Strong financial results

The business also exhibits strong growth over the long and short term. Between 2017 and 2021, for example, profit before tax grew from £3.5bn to £8.4bn. 

Over the same time period, revenue rose slightly from £21bn to £21.9bn.

Furthermore, for the three months to 31 March, profit before tax was £2.2bn. While this was 7% less than the same period in 2021, it beat expectations of £1.3bn.

The year-on-year fall in profit was mainly caused by the over-issuance of bonds in the US by the bank. This led to a fine of over £500m.

In addition, total income grew by 10% during this period.

Interest rate hikes

Interest rates also have an impact on the banking industry because they influence how much banks can charge for loans and mortgages.

Last week, the Bank of England increased interest rates to 1% from 0.75%. While this is still low when compared to other times in the past, more interest rate hikes could be on the way. 

This may be good news for the Barclays share price. It will likely cost more to borrow money from the bank.

Despite this, it’s possible that rising interest rates, along with inflation and surging energy prices, could deter potential customers from borrowing or taking mortgages.

In the housing market, however, homebuilders like Taylor Wimpey and Persimmon, expect demand for houses to remain solid for now.

Overall, the cheap Barclays share price provides an exciting opportunity to add this FTSE 100 stalwart to my portfolio. As conditions become ever more favourable, I will be buying shares in the business soon with my spare £1,000.    

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Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and 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.

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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