Lloyds shares drop 20% in 4 months. Should I buy now?

Lloyds shares have lost a fifth of their value since peaking on 17 January this year. But after rebounding from March’s low, they still look cheap to me.

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It’s been a roller-coaster 12 months for shareholders in Lloyds Banking Group (LSE: LLOY). Since May 2021, the Lloyds share price has zig-zagged up and down as market optimism rose and fell. But when I look at Lloyds shares today, I believe that the future could be brighter for this widely held stock.

Lloyds shares bounce around

Here’s how Lloyds shares have performed over seven different timescales:

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One day1.1%
Five days3.5%
One month-2.7%
Year to date-7.7%
Six months-11.7%
One year-8.2%
Five years-38.5%
All returns exclude cash dividends.

As you can see, Lloyds shares have risen over one day and five days. However, over all five periods, ranging from one month to five years, the share price has been trending downwards. Particularly disappointing is Lloyds’ five-year performance, where the share price has dived nearly two-fifths. Over the same period, the FTSE 100 index has inched up by 0.6%. This makes Lloyds one of the Footsie’s weaker performers over the past half-decade.

However, Lloyds shares got off to a decent start to 2022. After ending 2021 at 47.8p, the share price hit a 52-week high of 56p on 17 January. Alas, it’s been mostly downhill since then as investors worry about rising inflation, the Russia-Ukraine war, Covid-19, China’s economic growth, and so on. Hence, as I write on Tuesday afternoon, the share price stands at 44.14p, down more than a fifth (-21.2%) from its 2022 high.

I’d buy Lloyds at current prices

Today, Lloyds shares currently trade 15.9% above their 52-week low of 38.1p, hit on 7 March this year. To be honest, I’d have been delighted to buy at that bargain-bin price. But even today, I see Lloyds shares as offering deep value to patient investors.

At the current share price of 44.14p, the entire group is valued at £30.5bn. To me, this seems a modest price tag for a leading UK bank servicing around 30m customers. Indeed, if I were mega-billionaire Elon Musk, I’d much rather buy Lloyds than a deeply loss-making social-media company.

To me, Lloyds shares trade on undemanding fundamentals. At today’s price, the shares trade on a lowly price-to-earnings ratio of 5.9 and an earnings yield of 16.9%. Furthermore, the dividend yield of 4.5% a year beats the 4% cash yield on offer from the wider FTSE 100.

In short, as a veteran value investor, Lloyds shares look like a compelling buy to me. Of course, I could be wrong, but I think the odds are broadly in my favour. In my view, for Lloyds shares to take another beating, something fairly radical would have to happen. For example, a house-price crash could wreak havoc with the Black Horse bank’s earnings and excess capital. But we haven’t had one of those here in the UK since the dark days of 2007/09.

Likewise, any escalation of the Ukraine war — already Europe’s largest conflict since 1945 — could send markets spiralling southwards once again. And the crisis in the UK’s cost of living could put more financial strain on homebuyers and other borrowers. Nevertheless, despite these risks, I’d happily buy Lloyds shares at current price levels!

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Cliffdarcy 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.

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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