Will the Lloyds share price drop to 50p in 2025 and should I buy the stock if it does?

The Lloyds share price has fallen 12% in six weeks, making the stock cheaper on a price-to-book basis than NatWest. Is this a rare opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It feels like ages ago that investors were wondering when the Lloyds Banking Group (LSE:LLOY) share price would make it up to 50p. In reality, it was only back in March. 

Created with Highcharts 11.4.3Lloyds Banking Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL12 Nov 201912 Nov 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Since then, a lot has happened. The stock was one of the FTSE 100’s best performers of 2024, topping 60p last month. But a 12% drop has suddenly put it into very interesting – and unfamiliar – territory.

Should you invest £1,000 in Lloyds Banking Group 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 Lloyds Banking Group made the list?

See the 6 stocks

Back to 50p?

The big risk with Lloyds right now is the possibility of a serious fine for mis-selling car loans. There’s still an outside chance this could come to nothing, but it seems unlikely at this stage.  

Analysts currently estimate the cost could be up to £3.9bn, which is roughly the same as the bank’s statutory profit for Q3. In that situation, I think the stock might well fall back to 50p.

There’s also the issue of interest rates, which have been falling recently. That typically means weaker profitability on loans and this showed up in the firm’s Q3 results.

Net interest margins between July and September were 2.95%, down from 3.08% the year before. But the situation with interest rates isn’t always as straightforward as it seems.

Interest rates

In the short term, banks like Lloyds can actually benefit from rates falling. This is because the interest they earn on loans is typically fixed, while the amount they pay on deposits isn’t. 

When rates fall, the interest banks offer on instant access accounts can be adjusted almost immediately. But the rate someone pays on their mortgage is typically fixed for a period of time.

This is especially relevant to Lloyds. The majority of its income comes from mortgages and it has the largest share of consumer deposits in the UK.

Investors should therefore be careful not to oversimplify things. While interest rates fell in Q3, Lloyds saw its margins increase from the previous quarter.

Valuation

Lloyds shares currently trade at a price-to-book (P/B) ratio of 0.83. That’s not significant on its own, but comparing it to NatWest Group reveals something interesting.

Lloyds vs. NatWest P/B ratio 2014-24


Created at TradingView

Over the last 10 years, Lloyds has consistently been more expensive on a P/B basis. But this has changed recently – at 0.97, it’s now NatWest shares that trade at a higher multiple.

Both banks are subject to the same interest rate risks. And while NatWest doesn’t have the same exposure to motor loans, it has its own issues to deal with.

These include having the UK government as a substantial shareholder. Despite this, the stock is trading at a higher P/B multiple than Lloyds – and I think this is significant.

Opportunity?

The respective P/B ratios give a good idea of how the market is thinking about the risks Lloyds and NatWest are facing. Unusually, investors are more concerned about the former right now.

My own view is that there are better opportunities elsewhere. However, I think the relative discount means Lloyds is the more attractive bank stock at the moment. 

I wouldn’t be surprised to see the share price drop to 50p in 2025. But it would probably take a bit more than that to get me interested.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Stephen Wright has no position in any of the shares mentioned. 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.

Pound coins for sale — 51 pence?

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

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »