Are Barclays shares undervalued? Here’s what the charts say!

Barclays shares are regularly cited as being among the cheapest on the FTSE 100. Dr James Fox takes a closer look at the giant banking stock.

| 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.

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Market sentiment towards Barclays (LSE:BARC) shares is particularly negative, even compared to its peers and the rest of the index. This, in itself, is a challenge, because as investors we need these momentum shifts to make our value investing strategies come good.

However, it’s widely recognised that Barclays is particularly cheap. So just how cheap are the shares, and is this an opportunity for investors?


The most simple of valuation metrics is the price-to-earnings (P/E) ratio. And this is where Barclays’ discount versus its peers first becomes apparent. Currently, it trades at just 4.27x earnings. That’s a fraction of the index average, around 13x, and substantially below the financial sector average, around 10.5x.

UK banks are among the cheapest. That broadly reflects the negative sentiment surrounding the UK economy and cyclical, UK-focused stocks like Barclays.

It’s also worth noting that any good news seems to be largely ignored by the market, with investors focusing on issues such as falling net interest margins over the next two years, rather than a more positive outlook on impairment charges.

Barclays is the cheapest FTSE 100 bank using the P/E ratio. Its valuation comes in at just a fraction of Bank of America (8.98x), Goldman Sachs (14.8x), and even HSBC (6.75x). Interestingly, Barclays broadly trades in line with Georgian bank TBC Bank (4.7x).


Price-to-book (P/B) ratio is a simple financial metric used to understand how the market values a company compared to the value of its assets. In a nutshell, the P/B ratio gives investors an idea of whether a stock is trading at a higher or lower value than what its assets suggest.

Once again, Barclays looks undervalued here versus its peers. Its P/B ratio is just 0.43, indicating a huge 57% discount versus book value. This is a truly exceptional valuation.

The below chart highlights this phenomenal discount versus its peers. UK-focused lender Lloyds is closest at 0.74x. Meanwhile, we can see that other banks, notably those that are US-listed, trade near or above their book value.

Created at TradingView


Barclays is less efficient at generating returns than some of its peers. This is demonstrated by the company’s lower-than-average Return on Tangible Equity (RoTE). This is a financial metric that measures a company’s profitability in relation to its tangible equity, essentially how efficiently a company is generating profits using its tangible assets.

The below chart highlights how Barclays compares with its peers. It’s worth highlighting that HSBC has recently upgraded its RoTE guidance to the mid-teens.

Created at TradingView


Although Barclays demonstrates comparatively lower efficiency in delivering returns compared to its peers, it stands out as the most affordably-priced major universal bank I’ve encountered.

However, it’s important to note that an undervalued stock doesn’t inherently guarantee a positive investment outcome. A positive investment trajectory for Barclays hinges on a necessary change in investor sentiment towards the bank, along with a broader upturn in the fortunes of the UK economy.

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.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. James Fox has positions in Barclays Plc and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. 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

Rainbow foil balloon of the number two on pink background
Investing Articles

If I could only buy 2 FTSE 100 dividend shares in December, it would be these!

I think these FTSE 100 income shares are brilliant stocks to buy for these uncertain times. Here's why I'll buy…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

Best British growth stocks to consider buying in December

We asked our freelance writers to reveal the top growth stocks they’d buy in December, which included retailers and real…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could buy just one FTSE stock right now, it would be this high flyer!

Mulling over the choice of only buying one FTSE stock, Sumayya Mansoor explains why she would choose this discount retailer.

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

8% or 4%? Is one dividend yield twice as good?

When it comes to income shares, could less be more? This writer considers the role of dividend yield in his…

Read more »

British Pennies on a Pound Note
Investing Articles

I’m eyeing this passive income machine for my SIPP in December!

A double-digit dividend yield is not the only thing that has grabbed this writer's attention when it comes to considering…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

One undervalued growth stock I’m eyeing up ahead of 2024!

This growth stock caught the eye of our writer. She breaks down its investment viability as she looks to start…

Read more »

Investing Articles

3 reasons the BP share price could surge in 2024

Stephen Wright outlines why resilient oil prices, lower inflation, and the avoidance of a global recession could send the BP…

Read more »

Investing Articles

Could buying these 3 AI shares be like investing in Tesla in 2010?

I wonder if investing in these three AI stocks could match the meteoric rise in the value of Tesla shares…

Read more »