The Motley Fool

Tempted by the Barclays share price? Here’s what you need to know

Image source: Getty Images.

If you’re tempted by the Barclays (LSE: BARC) share price, I can’t blame you. The stock looks deeply undervalued at current levels and seems to be one of the most hated banking stocks in the UK right now — even though profits are rising.

Earlier this week, the bank reported its highest profit for the first half of its financial year in nine years. Underlying profitability, which strips out the effects of one-off charges and other costs, hit £3.1bn. Attributable profit came in at £1bn and earnings per share for the six months were 12.6p. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Stronger business

Barclays’ other profitability and quality metrics improved markedly in the first half of 2019. Group return on tangible equity came in at 9.3%. Meanwhile, its Tier 1 capital ratio increased by 40 basis points to 13.4%, substantially above its base requirement. Considering its position and surging profits, management decided to increase the bank’s interim dividend by 20% year-on-year to 3p per share. 

Considering all of the above, it’s not clear to me why the market continues to place such a low multiple on the Barclays share price. Indeed, at the time of writing, shares in the bank are trading at forward P/E of less than 7 and a price to tangible book value of just 0.5. Based on current City forecasts, the stock also supports a forward dividend yield of 4.9%.

Companies only really deserve to trade at a discount to book value if they’re unprofitable and losing money for shareholders, which isn’t the case with Barclays. A near double-digit return on tangible equity for the full year would make the bank one of the most profitable in Europe on this metric. Also, the bank’s earnings per share are on track to grow by around a fifth this year, assuming there are no substantial adverse developments during the second half. 

That said, there’s the prospect of Brexit in the second half. A messy exit could destabilise the UK economy and, as one of the largest lenders in the UK, Barclays’ business. As we still don’t know what form Brexit will take, this is the big unknown that’s overhanging the bank and its share price. 

A positive outcome

However, while a no-deal Brexit might upset the UK economy and cost Barclays some money, unless there’s a severe economic crash, I think the bank has what it takes to weather near-term economic instability. At the same time, there could be tremendous upside on offer for shareholders if a deal is agreed before the end of October.

Weighing up these two scenarios leads me to conclude that Brexit might not be as big an issue for the firm as the market seems to be anticipating. With this being the case, I think the Barclays share price looks undervalued at current levels and could be worth your research time if you’re looking for an undervalued bank with a market-beating dividend yield.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.