As the Bank of England says it’s open to pro-growth bank reforms, does Barclays’ £2.94 share price look a bargain to me?

Barclays’ share price is up over the year, but a lot of value may remain, especially after pro-bank growth comments from the central bank.

| 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.

Hand of person putting wood cube block with word VALUE on wooden table

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.

Barclays’ (LSE: BARC) share price is trading near its 12-month high of £2.98, which was reached on 21 January.

This does not mean the stock has no value left though. It could be that the bank is just fundamentally worth more than before.

Or the market could simply be catching up to its true value. Indeed, it may be that this true value is still not fully reflected in the current share price.

Should you invest £1,000 in Dowlais 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 Dowlais Group Plc made the list?

See the 6 stocks

To find out which is applicable to Barclays, I ran a deep dive analysis into its price and the issues surrounding it.

Share price valuation

The UK ‘Big Four’ bank currently trades at a price-to-earnings ratio of 10. This is top of its peer group, which averages 7.9. These competitors comprise NatWest at 7.5, Standard Chartered at 7.8, HSBC at 7.9, and Lloyds at 8.4. 

So, it looks overvalued on this basis.

However, on the price-to-book ratio Barclays presently trades at 0.6. Its competitor group average is 0.8, so it is undervalued on this measure.

It is also undervalued on the price-to-sales ratio, trading at 1.8 against a 2.3 peer group average.

To get to the bottom of the pricing, I ran a discounted cash flow analysis. In Barclays’ case, this modelling shows its shares are 26% undervalued at their current £2.89 price. Therefore, the fair value of the stock is technically £3.91.

Created with Highcharts 11.4.3Barclays Plc PriceZoom1M3M6MYTD1Y5Y10YALL29 Jan 202029 Jan 2025Zoom ▾Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '24Jan '2520212021202220222023202320242024www.fool.co.uk

They may trade lower or higher than that based on varying market forces, of course. However, it confirms to me that the shares may be a bargain right now.

Core business outlook

A risk for Barclays is the recent decline in UK interest rates and the possibility of additional falls to come. This might further affect its net interest income (NII) – the difference between the interest made on loans and deposits.

However, in its Q3 2024 results it upgraded its full-year 2024 NII target to above £11bn from around £11bn. For Barclays UK, the NII forecast is now around £6.5bn, from around £6.3bn.

These upgrades have resulted partly from a shift towards fee-based – rather than interest-based – business. And it has also followed an ongoing hedging programme. This aims to offset the effects of interest rate reductions through various financial instruments. Indeed, to the end 2026, Barclays targets total income of around £30bn.

Analysts forecast its earnings will increase by 10.86% each year to the end of 2027. And it is ultimately these that power a firm’s share price and dividend higher.

Another boost may come from the Bank of England’s current efforts to persuade the government to reduce banks’ regulatory requirements to help boost economic growth.

Will I buy the shares?

I already have holdings in HSBC and NatWest, bought a considerable while ago. So, adding another banking stock to my portfolio would negatively skew its risk-reward balance, I think.

However, if I had a larger portfolio or did not have two banking stocks in mine, I would buy Barclays’ shares today.

Central to my view is its strong earnings growth forecasts in the coming years. These should push the share price much closer to fair value, in my view. It should also prompt a rise in its dividend yield, I think.

Should you buy Dowlais Group Plc now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation 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.

Simon Watkins has positions in HSBC Holdings and NatWest Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, Lloyds Banking Group Plc, and Standard Chartered 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

More on Investing Articles

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »

Investing Articles

Prediction: Unilever to outperform the FTSE 100 over the next 12 months

The FTSE 100 has made a strong start to 2025, but Stephen Wright thinks a popular dividend stock could be…

Read more »

Investing Articles

I just bought this legendary S&P 500 tech stock for my ISA, 27% off its highs

This S&P 500 stock has tanked over the last month and Edward Sheldon has snapped it up for his portfolio…

Read more »