The Barclays (LSE:BARC) share price has delivered a 191% gain over the past five years. Yes, that was from a low base, but investors could still have picked up shares in the bank for 130p in late 2023. Today, the banking stock trades for 343p a share.
What’s more, if an investor bought stock around 130p, they’d also have locked in a very sizeable dividend yield. If I’m not mistaken, the yield was around 5.5% when I built most of my position in 2023.
Everything at once
This performance has been underpinned by the bank’s ongoing strategic transformation, strong financial results, a renewed focus on efficiency and diversification, and a vast improvement in investor sentiment.
These factors were most apparent in the first quarter earnings. The group reported an 11% year-on-year increase in total income to £7.7bn, with profit before tax rising 19% to £2.7bn. The investment banking division stood out, posting a 16% revenue increase and capitalising on heightened market volatility.
The bank’s return on tangible equity (RoTE) — a key metric for measuring profitability in finance — reached 14% for the quarter. That’s well above the group’s unchanged full-year target of around 11%. Management also upgraded net interest income guidance for 2025.
This is further evidence that the strategic transformation’s already delivering tangible results. Recent acquisitions including Tesco Bank, and expansion into private credit have diversified revenue streams and reduced reliance on more cyclical segments.
But has it peaked?
However, the question remains whether Barclays’ share price has peaked. The current valuation, with a price-to-earnings (P/E) ratio of around 8.4, remains discounted compared to many global bank peers.
This suggests there could still be room for further appreciation if the bank continues to deliver on its strategic objectives and market conditions remain supportive. This P/E figure falls to six times by 2027, while the dividend yield grows from 2.6% to 3.4%.
However, risks to the outlook are significant. Macroeconomic uncertainty persists, with concerns about global growth and rising US debt. Moreover, UK house price declines potentially impact credit quality and consumer demand. Barclays’ US Consumer Bank division continues to struggle, and any deterioration in the US economy could weigh on group results
Personally, I’m not adding to my position in Barclays. But the reason is concentration risk. A lot of my invested capital is in Barclays and Lloyds. Adding more probably wouldn’t be wise.
However, that doesn’t mean I’m not bullish over the long run. Avoiding any economic disaster I’d expect the stock to make steady gains.
And one reason for that is the interest rate environment. If central bank rates sit between 2% and 3.5% in the long run, and the economy chugs along, it’s likely to be a profitable environment for lenders. This is crucial for banks. And that’s why I believe Barclays is certainly worth considering.
