The Barclays (LSE: BARC) share price has had a storming run. It’s up 58% over the last 12 months and a staggering 266% over five years.
Those are impressive figures from a supposedly big and boring British blue-chip. It’s yet another reminder of how underrated FTSE 100 shares can be. And those numbers are before accounting for all the dividends paid over the same period.
Existing investors will be thrilled, the rest of us kicking ourselves for missing out. Past performance isn’t a guide to the future, but there are still ways of judging where Barclays shares may go next.
Valuation’s still reasonable
I like to start with a stock’s valuation, typically its price-to-earnings (P/E) ratio. Despite its recent surge, Barclays remains surprisingly cheap at 10.6. That’s well below the 15 often seen as fair value. The key reason is that it’s still making bags of money to justify that P/E. Earnings per share jumped 62% in the year to 30 June, which followed a 33% rise the previous year.
The price-to-book ratio is another helpful measure for banks. Barclays sits around 0.7, comfortably under the figure of 1 seen as good value, while a figure of up to 2 is often acceptable. This suggests there’s still room for growth, provided profits continue flowing.
Strong quarterly results
Barclays’ Q3 results, published on Wednesday (22 October), showed a 7% drop in profits to £2bn. That was mostly due to an extra £235m provision for the UK motor finance scandal, which brought total impairments to £325m. Its investment bank also booked a £110m credit impairment.
Brokers think these are just bumps on the road. AJ Bell’s Russ Mould noted the bank is on track for its best-ever year for pre-tax income, barring unforeseen problems, and should beat the £8.4bn made in 2021.
Consensus analyst forecasts produce a one-year median target at 429p. If correct, that would mark a 11.2% increase from today. That’s fine, but notably slower than recent gains. It may reflect wider concerns about a US-driven market slowdown that could hit Barclays’ investment banking arm.
The trailing dividend yield’s just 2.2%, expected to edge up to 2.4%. Adding this gives a total projected return of 13.6%. That would turn a £10,000 investment into £11,360. It’s not an overnight fortune, but that’s not what investors should look from buying FTSE 100 shares.
The real benefits come via steady long-term compound growth from a rising share price and reinvested dividends. That also allows investors to look past short-term market swings.
Share buyback spree
There’s a reason for that low dividend yield. Barclay plans to return a bumper £10bn to shareholders between 2024 and 2026, partly through dividends but mostly via share buybacks.
Yesterday, it surprised investors by announcing a quarterly £500m buyback, with more to come. I personally prefer dividends, but won’t complain about buybacks, as they should also boost returns over time.
I think Barclays shares are still worth considering today. I favour a long-term view, given all the worries about a potential stock market crash (but that goes for almost any stock today). Barclays is a brilliant reminder that FTSE 100 shares are still amazing way to build long-term wealth.
