As of close on 22 December, the Lloyds (LSE: LLOY) share price sits at 47.1p. It can’t just be me that thinks it looks incredibly cheap.
It’s very difficult to predict where a stock will go next. But with Lloyds, I’m intrigued to look into what could be in store. Many things go into impacting how a company’s shares perform. There’s no doubt that market sentiment next year will be heavily influenced by interest rates. Of course, we’ve also seen the impact events such as the conflict in Ukraine can have on markets.
I own Lloyds shares. But at their current price, should I be topping up?
Lack of growth
I like Lloyds, but I can see why investors may be cautious about buying the stock. After all, it hasn’t proved to be the greatest investment over the last five years.
What I see as the biggest risk to the bank is its reliance on the UK economy. It doesn’t have an international operation. And while that has its benefits, it could also be a catalyst behind its underwhelming performance. The Office for Budget Responsibility recently dropped its growth outlook for 2024 and 2025 to 0.7% and 1.4% from a previous forecast of 1.8% and 2.5%. A lack of growth could see Lloyds struggle in the approaching years.
Fundamentals
But I wouldn’t say it’s all down and out. For long-term investing, I think valuation is very important. That’s in part why I own the stock. It currently trades on a trailing price-to-earnings (P/E) ratio of around 6.5, far below the global sector average of around 10.
Moreover, I’m attracted due to its price-to-earnings-to-growth (PEG) ratio. The PEG is calculated by dividing a company’s P/E ratio by its forecasted earnings per share growth rate. For Lloyds, this comes in at 0.53. What that tells me is that the stock is undervalued by almost half.
Extra cash
But there’s another reason why I own Lloyds. That’s for passive income. Its dividend yield of 5.4%, covered a healthy two times by earnings, is a major attraction for me. While I hold my shares in the hope of them rising, I can collect some extra cash along the way.
Now, of course, I’m yet to address the elephant in the room. That’s interest rates. What course of action the Bank of England takes regarding rates will have a large knock-on effect on Lloyds’ price.
Many are predicting we’ve now seen the peak of hikes. Some forecasts have the base rate sitting around 1% lower within the next year. Should this happen, this will provide a large boost for the business. Not only will it shore up the property market, which the firm is heavily involved in, but it’ll also lift investor sentiment.
Too good to pass on?
Below the 50p mark, would I be silly to pass up on buying more shares? I’d say so.
Granted, we shareholders may experience further volatility in the foreseeable future. But I see Lloyds coming out the other side of this. With its low valuation, meaty yield, and potential for growth, I’m holding on to my Lloyds shares. With any spare cash, I’ll be adding to my position.
