Lloyds‘ (LSE:LLOY) share price has roared into life over the last year. Dividends have also continued to surge, underpinned by strong earnings growth and a robust balance sheet. The question is, can the FTSE 100 bank keep the momentum going?
Over the past year, the shares have surged 73.3% in value. Add in the 4.7% trailing dividend yield and the total return improves to 78%. That would have transformed a £10,000 investment into £17,800.
Last year’s performance was especially heroic. But the bank’s been delivering solid shareholder profits for years. During the past five, it’s delivered a total return of 227.4% from a blend of share price gains and dividends. It’s comfortably beat the broader FTSE 100’s 84.4% return.
What next?
The trouble is that these stunning gains now leave the Black Horse Bank looking pretty expensive. Lloyds shares now trade on a forward price-to-earnings (P/E) ratio of 11.2 times, which is miles above the five-year average of 7.1.
Furthermore, the price-to-book (P/B) ratio — which measures Lloyds’ share price relative to the value of its net assets — is currently 1.6. That’s double the 0.8 it’s averaged over the last half-decade.
Do analysts think this could impact the price going forwards? Twenty of them have ratings on the company, producing a consensus price target of 112.3p for the next 12 months. That’s up 3.1% from today’s 108.95p.
Mixing in a 3.8% prospective dividend yield, a £10k investment in Lloyds shares today could transform into £10,690 a year from now. That’s far from a terrible return. But it does illustrate the challenge the bank faces to keep rising in value given that enormous valuation.
Rock solid
Banks are highly sensitive to broader economic conditions. Revenues can sink when consumers and businesses tighten their belts. Loan impairments can shoot through the roof.
Yet Lloyds has found a way to navigate the current tough landscape, with profits up 12% over the course of 2025. Its excellent brand power and diversified product range has helped it continue to grow income. Investment in technology (including AI) and ongoing streamlining’s also helped it control costs. Considering all this, it’s perhaps no surprise its shares have taken off.
But is this resilience now fully reflected in the share price? I think so. In fact, I believe Lloyds’ high valuation fails to properly account for other significant risks it faces in 2026 and further out. A deteriorating UK economy, rising competition, falling interest rates, and higher motor finance penalties all pose massive dangers to the stock.
In my view, they have the potential to send Lloyds shares sharply lower.
Are the shares a Buy?
Analyst forecasts aren’t always accurate, and the share price could well rocket again. Not many expected it to take off in 2025, after all. It could very well repeat the trick.
Investors should also consider that brokers remain largely positive on the shares despite those weaker price expectations. Eleven rate them a Strong Buy, and another one as a Buy. Seven give it a Hold, and the remaining one broker thinks it’s a Sell.
On balance, I’m not convinced enough to buy the bank for my own portfolio. But I think Lloyds could be a stock to consider for more adventurous investors.
