The Lloyds share price is red hot! Is it finally time to sell?

The Lloyds share price has displayed more volatility than we might expect from a FTSE 100 stalwart this year. But with the stock up, is it time to sell?

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The name of the game is to buy low and sell high. That’s how we become successful investors. So, with the Lloyds (LSE:LLOY) share price up 17.2% over the past 12 months, are we looking at an opportunity to consolidate our gains and sell?

This won’t happen every year

If I had invested in the banking stock a year ago, I’d also have received around 5.5% of my original investment back in the way of dividends. So, £1,000 invested then would give me around £1,227 today in the form of total returns — share price gains plus dividends.

It goes without saying that Lloyds shares are unlikely to return 22.7% to shareholders every year. The stock was quite clearly undervalued 12 months ago, and the recent appreciation reflects improving economic conditions and consistently solid earnings, as well as stronger investor sentiment.

Still a ‘buy’ according to analysts

City and Wall Street analysts are still bullish on Lloyds. The stock has eight ‘buy’ ratings, four ‘outperform’ ratings, five ‘hold’ ratings, and one ‘underperform’ rating. Moreover, the average share price target has been rising as Lloyds shares have risen in recent months. The average share price target is currently 60p. That represents an 11.3% premium versus the current share price.

The caveat here is that UK stocks tends to be undervalued versus their target prices. Investor sentiment just isn’t strong enough and it’s very uncommon to see a company trade above its price target.

Forecasts are solid

Lloyds is no longer as cheap as it once was. However, earnings forecasts and the respective price-to-earnings (P/E) ratios are still attractive, especially compared to US peers. Here’s an overview:

Earnings per share (p)P/E
20238.66.4
20245.99.3
20257.27.6
20268.66.4

The figures provided for 2024 onwards are estimates. Of course, we don’t want to see earnings fall in the near term, but 2023 was an exceptionally good year as net interest margins soared.

The bottom line

Lloyds might not be as cheap as it was. It’s also less diversified than its peers — around 60% of loans concern UK mortgages — and that represents something of a risk for investors.

However, it’s a FTSE 100 business on a strong footing. Lloyds looks set to benefit to the tune of £5bn in 2025 due to its well-implemented hedging strategy and interest rates are likely to settle in the so-called Goldilocks zone in the medium term.

As I noted before, Lloyds is unlikely to offer mega-returns (like the last 12 months) every year. However, I’d expect to see positive trends in the share price over the next five years, and that complements a dividend yield of around 4.5%.

Lloyds already represents a sizeable part of my portfolio, and due to concentration risk, I’m unlikely to buy more of the stock. However, I remain bullish and I don’t believe it’s time to sell.

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.

James Fox has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended 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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