Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb to in the near term.

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Lloyds’ (LSE: LLOY) share price is on a tear at the moment. Three months ago, shares in the UK bank were trading near 46p. Today however, they’re changing hands for around 55p – about 20% higher.

Wondering how high the shares can go? Here are my thoughts.

60p on the horizon?

Let me start by saying that predicting future share prices is notoriously difficult. In the short term, anything can happen.

That said, the trend for Lloyds share price is clearly up right now. And trends can stay in place for a while.

So, I wouldn’t be surprised to see Lloyds shares continue moving towards the 60p mark in the short term.

It’s worth noting here that the average broker price target for Lloyds shares is currently 59.6p.

I think that price may be achievable. The stock might even breach this level.

A full valuation

In the near term, however, I’m not convinced that the shares can climb much beyond the 60p level.

One reason I say this is the valuation.

At 60p, Lloyds would be trading on a forward-looking price-to-earnings (P/E) ratio of about 9.4. To my mind, that’s a pretty full valuation.

Sure, that earnings multiple is well below the market average (the average P/E ratio across the FTSE 100 is about 14.4 currently). But banks tend to have low P/E ratios.

Take America’s JP Morgan (which is widely regarded as one of the best banking organisations in the world), for example.

It only has a P/E ratio of 12, despite the fact that it has an incredible long-term track record when it comes to generating shareholder wealth (unlike Lloyds).

I’ll point out here that JP Morgan is expected to generate earnings growth of 4% this year while Lloyds is projected to register growth of -16%.

Medium-term outlook

Looking further out though, Lloyds’ share price could potentially move higher. At present, analysts expect the bank’s earnings to rise 16% in 2025 to 7.46p.

If it’s looking like that kind of earnings growth can be achieved, the shares could continue to rally.

Risks to the share price

Of course, there’s no guarantee that Lloyds shares will continue to climb at all.

Some bad news in relation to the UK economy, property market, or consumer could lead to a wobble. Unlike HSBC and Barclays, Lloyds doesn’t have a lot of international diversification.

Another factor that could send the price back down again is the Financial Conduct Authority’s (FCA) investigation into motor finance mis-selling. Lloyds has set aside £450m for this. However, some analysts believe the costs could be much higher. Analysts at RBC, for example, have said that Lloyds could be looking at a hit of up to £3.5bn.

Better shares to buy today?

Given my view that the 60p mark could be an obstacle for Lloyds shares, I won’t be buying them for my own portfolio.

All things considered, I think there are better opportunities in the stock market for my money right now.

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.

Ed Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. 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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