Why Barclays PLC’s Fine Could Represent A Buying Opportunity!


Life as an investor in Barclays (LSE: BARC) (NYSE: BCS.US) continues to be a rather difficult existence. As well as shares in the bank having performed dismally during the course of 2014, with them being down 16% since the turn of the year, Barclays continues to be fined by various regulators.

The latest of these are fines by the UK’s FCA for client asset breaches (£38 million) and £9 million for lax internal compliance procedures in the wake of the Lehman Brothers takeover in 2008, levied by the US SEC.

Weak Sentiment

While neither fine is particularly large when compared to Barclays’ pre-tax profit of £5.8 billion that is due to be recorded in the current financial year, they mean more bad headlines for the bank. In turn, this weakens investor sentiment and causes the share price to remain depressed. Indeed, with Barclays still having the potential for more fines, including allegations of fraud in its dark pool trading system, sentiment could remain weak for a little while yet.

Buying Opportunity

However, such weak sentiment presents a buying opportunity for Foolish investors. That’s because, while Barclays is still feeling the effects of what appear to be lax internal controls under previous management, the bank continues to make excellent progress towards becoming leaner, more efficient and, ultimately, more profitable.

Growth Potential

For example, Barclays is forecast to increase earnings per share (EPS) by a whopping 27% in the current year, followed by further growth of 28% next year. This means that shares in the bank currently trade on a price to earnings (P/E) ratio of 10.7 and a price to earnings growth (PEG) ratio of only 0.4. Together, these figures show that Barclays offers very strong growth at an incredibly attractive price.

Looking Ahead

Clearly, Barclays is unlikely to see sentiment pick up to a significant extent until it leaves behind legacy issues such as the fines that were announced this week. In the meantime, though, a smaller, less risky and hugely more profitable bank is being built; as shown by the strong earnings growth forecasts for the next couple of years. This provides investors with the chance to buy in to Barclays at a very low price and, as a result, it could prove to be a winning investment over the medium term.

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Peter Stephens owns shares of Barclays.