With a P/E of 7.7 is the Lloyds share price back in deep bargain territory?

Harvey Jones has enjoyed watching the Lloyds share price rise and rise over the last year, while its dividends are the icing on the cake. Should he buy more today?

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The Lloyds (LSE: LLOY) share price has had a bumper year, rising 36.68% in the last 12 months. That’s a real turnaround after it went sideways for years. I’m delighted because I bought its shares last summer, just in time to benefit.

Created with Highcharts 11.4.3Lloyds Banking Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The total one-year return’s comfortably above 40%, once the FTSE 100 bank’s trailing 4.71% dividend yield is added to the tally. Lloyds is finally living up to its potential, despite the cost-of-living crisis dragging on for longer than I expected.

Is this FTSE 100 bank going cheap?

The fun is over for now with Lloyds shares falling 1.29% in the last three months, but that’s fine by me. No stock goes up in a straight line forever. I’m hoping to hold Lloyds for decades, and expect my share of ups and downs along the way. I’m wondering whether the recent slowdown’s an opportunity to add to my stake.

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The shares still look great value, measured by a price-to-earnings ratio of 7.7. That’s almost exactly half the FTSE 100 average of 15.4 times.

Its price-to-book value’s 0.8, where a figure of 1 is seen as fair value. Again, this suggests the shares are under priced, although when I bought the P/B was lower at 0.6. So Lloyds isn’t quite the ultra-deep bargain it was.

I’ve decided to look at another metric, the price-to-sales (P/S) ratio. This compares a company’s share price to its revenues and shows how much value financial markets are placing on each pound of sales it makes.

Today, the Lloyds P/S ratio is exactly 1. So the shares don’t look overpriced but, sadly, I can’t claim they’re in deep value territory either.

I’m not the only one who thinks this way. The 19 analysts offering one-year share price targets for Lloyds have set a median value of 62.51p. That’s up a modest 6.85% from today’s Buy price of 58.62p. That’s just one-sixth of the growth we’ve seen over the last year.

Investors still get a brilliant yield

The maximum broker share price target is 78p and the minimum is 54p. That’s quite a tight range, which suggests nobody’s expecting a major share price movement in either direction. That doesn’t surprise me either.

Sentiment has dipped lately, due to war in the Middle East, concerns over the Chinese economy and a US hard landing. In the UK, growth appears to have stagnated as Labour’s autumn budget casts a shadow.

There’s some good news, with UK house prices climbing 3.2% over the last year, according to Nationwide. At the same time, the Bank of England’s giving out very mixed signals on base rate cuts.

Falling interest rates will be a mixed bag for Lloyds in any case. While they will boost consumer spending power, house prices and mortgage demand, they’ll also squeeze Lloyds’ net interest margins, the difference between what it pays savers and charges borrowers.

Even if the Lloyds share price doesn’t shift much over the next year, I can still look forward to more dividend income. The forecast yield’s a handsome 5.6%, covered twice by earnings. Lloyds remains a strong long-term buy-and-hold to consider for both income and growth. But right now, I think there are bigger bargains out there.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Compass Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Compass Group Plc made the list?

See the 6 stocks

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.

Harvey Jones 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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