At 41p, are dirt-cheap Lloyds shares worth buying in a heartbeat?

After a positive Q3 interim management statement, our writer explores whether now is the right time to buy some potentially undervalued Lloyds shares.

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The last three years have by no means been plain sailing for the Lloyds (LSE:LLOY) share price.

Back in December 2019, the bank’s shares traded for around 64p before plummeting over 60% to 24p at the height of the Covid-19 pandemic.

This means that if I’d have been savvy enough to buy at the bottom, I could have realised a whopping 115% gain by February 2023. Alas, it’s easy to be wise after the event.

Since February, however, performance has been poor. So much so that at today’s price, I could scoop up some shares for around 41p a piece.

With that in mind, could now be an ideal opportunity to buy in? Let’s take a closer look.

Exposure to the UK economy

Fluctuations in global economic conditions, market uncertainties and specific industry challenges have all contributed to the instability experienced by UK banks.

Moreover, Lloyds is one of the nation’s biggest retail banks and mortgage lenders and has virtually no overseas activities. As a result, its fortunes are closely tied to the British economy.

Clearly, investing in a financial institution with such strong ties to a single economy comes with its risks. After all, economic downturn or political instability in the UK threaten to significantly impact Lloyds’ performance more than would be the case for a more international bank such as HSBC.

In my view, that’s particularly concerning given the UK economy is believed to be experiencing renewed signs of stress. This stems from the prospect of high interest rates, continued uncertainty and low productivity.

A group performing well

That said, amid a relatively poor macroeconomic environment, Lloyds appears to be coping well. In fact, last month the group reported a robust third quarter financial performance with strong capital generation.

While net interest margin (NIM) fell quarter-on-quarter to 3.08%, net interest income rose by 1% to £4.5bn and deposits increased by £500m.

That drop in NIM is something to keep an eye on, but it’s encouraging that management remains confident enough to reiterate full-year guidance of NIM greater than 3.1%.

Overall, the solid performance was driven by net income growth, cost discipline and resilient asset quality.

The future is bright

Looking ahead, I’m confident in the long-term outlook for Lloyds. In my eyes, it is well positioned to succeed in driving revenue growth and diversification, and strengthening cost and capital efficiency.

When it comes to strategy, I’m convinced that the core focus on growth stands the group in good stead. To illustrate, around two thirds of the £3bn strategic investment announced last year is aligned to growing and diversifying revenue.

What matters for success here is whether Lloyds can carefully prioritise opportunities across each of its businesses to ensure the group generates value in the near term while simultaneously creating new revenue streams that deliver over the longer term.

All things considered, I’d snap up some Lloyds shares in a heartbeat if I had any spare cash lying around. Today’s price of 41p per share looks like a true bargain from where I’m sitting.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

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