Barclays‘ (LSE:BARC) shares have been on a tear this year. At the time of writing, the stock’s up 40.5% year to date. That means a £10,000 investment made in early January would now be worth around £14,050. That’s a sizeable gain in just eight months.
So what’s behind this impressive rally? Several factors stand out, in my view.
Beating expectations
First and foremost, Barclays has delivered strong financial results throughout 2025. And stocks typically move the most after reporting on earnings. The bank reported a 19% increase in profits in Q1 and a further 28% jump in Q2 — both comfortably ahead of analysts’ forecasts. For the first half as a whole, pre-tax profits rose 23% year on year.
This performance reflects impressive execution across the business. Despite a cooling interest rate environment, Barclays raised its net interest income guidance from £12.2bn to over £12.5bn for the full year.
This points to robust UK lending activity and strong margin management, even as the Bank of England pivots to further rate cuts.
Perhaps more surprising has been the strength of Barclays’ investment bank. Income from the investment arm rose by 10% in the second quarter, aided by elevated volatility and a rebound in corporate dealmaking.
As rates fall and M&A activity rebounds globally, Barclays looks well placed to continue capitalising on this trend.
Investors rewarded
The board has also made good on its promise to return capital to shareholders. Management’s committed to at least £10bn in dividends and buybacks between 2024 and 2026. In July, an additional £1bn share buyback was announced.
Not only do these moves support the share price, but they also reinforce management’s confidence in the underlying business.
Despite this year’s rally, Barclays still trades on a forward price-to-earnings (P/E) ratio below the global sector average (9.1 times). That leaves scope for further multiple expansion, particularly if earnings continue to surprise positively.
Looking forward, the current forecast sees the P/E ratio fall to 7.3 times in 2026 and then to 6.4 times in 2027. The price-to-book ratio also sits at 0.81, another potential sign of value.
The bottom line
Throughout the past few years, Barclays has maintained a strong capital position. While it has prudently set aside additional reserves for potential losses amid ongoing global uncertainty, there’s been no meaningful deterioration in its loan book, so far. Core equity tier 1 (CET1) ratios remain strong (13.6% at the end of 2024). This supports further capital deployment if conditions remain favourable.
That said, risks remain. A sharper-than-expected downturn in the UK economy — particularly in the housing market or commercial lending — could weigh on asset quality and dent near-term profitability. Likewise, geopolitical tensions or a resurgence in inflation could disrupt the current positive momentum.
Still, it’s been a strong year for Barclays. And those investors who backed the shares early in 2025 have been handsomely rewarded. I’m not adding to my position due to concentration risk, but I’m still cautiously optimistic. I believe it’s worth considering for the long run.
