With the Lloyds (LSE: LLOY) share price sitting just below £1, I think the market is still undervaluing its recovery story. Net income is growing, margins remain stable, and management is guiding for stronger returns over the next few years.
Yet the shares trade at a steep discount to fair value, despite strong earnings growth forecasts from analysts. For a ‘Big Four’ FTSE 100 bank with these improving forward‑looking metrics, that valuation gap is getting harder to ignore.
So, should I buy the stock right now?
Do the latest results back this up?
At first glance, Lloyds’ recent results do not look encouraging. Statutory profit before tax fell 36% year on year in Q3 2025 to £1.174bn, while profit after tax dropped 42% to £778m. Total costs also jumped 37% to £3.177bn. Those are the kinds of numbers that can easily spook investors.
But most of this weakness came from a single factor: a sharp rise in remediation charges. These were £875m in the quarter, up from just £29m a year earlier, largely due to legacy motor finance issues.
Strip that out, and underlying operating costs were almost flat, rising only from £2.292bn to £2.302bn. That tells me the bank’s core cost base remains under control, even if one‑off provisions are creating noise in the statutory figures.
Meanwhile, the underlying business continues to move in the right direction. Net income rose 6% to £13.6bn over the first nine months of 2025, with both net interest income and other income growing.
Margins remain stable too, with Lloyds keeping its net interest margin at around 3%. This shows it is still earning solid returns on its lending even as deposit costs rise.
In short, the bank’s engine room is still generating more revenue, even as legacy issues temporarily weigh on headline profits.
A risk here is that further provisions for the motor insurance mis-selling could be required. This could delay the improvement in returns that the bank is hoping for.
That said, consensus analysts’ forecasts are that Lloyds’ earnings will grow 17% a year to end-2028. And it is ultimately this that powers any company’s share price and dividend higher over time.
A wide price-value gap
A stock’s price is not the same thing as its value. The former is simply whatever the market will pay for a share at any given moment. The latter reflects the true worth of the underlying business’s fundamentals.
This distinction is key to making long-term profits, as asset prices tend to converge to their ‘fair value’ over time.
In Lloyds’ case, a discounted cash flow analysis shows the shares are 31% undervalued at their current 99p price.
Therefore, their fair value is £1.43.
My investment view
Lloyds looks undervalued to me, with rising income, stable margins and a clear path to stronger returns.
But I am not buying the shares myself. I already own two bank stocks – HSBC and NatWest. Adding another would skew the risk‑reward balance of my portfolio. I also avoid sub‑£1 shares, as their pricing volatility is not something I want at my later stage in the investment cycle.
For investors without those constraints, though, Lloyds may still be worth considering as a long‑term value opportunity.
