Up to 29 December, Lloyds (LSE: LLOY) shares had shot up by 76% since the turn of the year. The performance gives ninth position to the black horse bank on the FTSE 100 leaderboard for 2025. An above-average dividend puts the icing on the cake here too!
A similar performance for 2026 isn’t completely out of the realm of possibility either.
Cheap shares?
Despite a monster year when Lloyds outperformed stocks all over the planet – including feted AI darling Nvidia among others – the valuation doesn’t look that stretched to my mind.
The price-to-earnings ratio currently stands at 15 and the forward P/E at 11. Compare this to the FTSE 100 P/E average of 19 or indeed Nvidia of 47. This suggests that the rise in share price is justified by the earnings the bank makes. Could we still be looking at a cheap stock?
Let’s take another commonly used valuation metric, the price-to-book ratio. This is a popular one in the banking sector because it compares the share price to its assets and liabilities – a useful judge for banks with massive balance sheets.
The Lloyds P/B ratio currently stands at 1.25. This is fairly typical when compared with other FTSE 100 banks. But it’s well below historical averages. In the early 2000s, a P/B of 3 to 4 and even higher was the norm. This again suggests the overall market may be underpriced.
Key dates
Let’s say Lloyds storms 2026 again. What might it look like? Well, here are a few dates to keep an eye on.
A big one is 5 February, which is when the Bank of England will meet to discuss interest rates. Banks tend to prefer higher rates as they offer better margins between the money they borrow and the money they lend. If the Old Lady of Threadneedle Street opts against many cuts this year, that could be good for banks with the caveat that defaults on loans are higher too – it can be a double-edged sword.
With the last decision on a knife-edge – at a 5-4 vote – it looks like higher interest rates for longer could support Lloyds shares in 2026. I may be wrong, of course.
An earlier date in the financial calendar to watch is 29 January, when Lloyds will announce preliminary full-year results. At the end of the day, a company’s earnings are what support increases in its share price. This was true in 2025 as Lloyds came out ahead of expectations on some important results. It should be true in 2026 as well and a surge of 76% or higher will ultimately depend on whether the bank can grow earnings.
Only time will tell whether 2026 can be as good as 2025 was for Lloyds shares, but I’d say there’s enough here to be optimistic. I’d call it one to consider.
