Since the start of the month to the close at time of writing, Lloyds Bank (LSE: LLOY) has seen a sharp rise of over 14% in share price. While I think this is a great time for investors looking to make short-term gains to cash out, the big question in my mind is whether LLOY can offer bigger gains in the long term.
More steam in share price
I like to start my analysis with the broader share price trend, a measure I find useful in contextualising its current position relative to where it’s been in the past. This shows that at its last close the share was still over 6% lower than the peak levels it has seen in the past year alone and almost 17% lower than the highest levels seen in the last five years.
In other words, there is still plenty of steam left in the share price. This argument is further backed by its price-to-earnings ratio (P/E), which also shows that the share isn’t terribly expensive. With an 11.4 times twelve-month trailing P/E, it’s just a tad higher than that of its peers RBS, Barclays, and HSBC.
Uncertainty persists
It’s true that Lloyds ran into troubles with regard to payment protection insurance (PPI) charges, for which it had to set aside £1.2–1.8bn as per the latest update. The PPI situation also hit the bank’s latest half-year results, with a decline in net profit by 4%. The bank also said that “continued economic uncertainty could impact outlook”, even while maintaining its long-term targets.
This led to a sharp fall in share-price at the end of July, which started its climb back up only in September. The share price is now back to almost where it was when I had written about it in the end of April. The price had run up quite a bit then, and it looked like a good share to buy on a dip. My view remains unchanged almost six months later.
It’s a strong and stable bank with a good financial track record. The recent hit to its financials isn’t isolated. All other banks have faced the same situation, if that’s any comfort. I think it’s likely that the bank will be able to put this mess behind it in the coming quarters.
Moving forward, there could be some pain in store regarding Brexit. If it does take place, some hit to the economy is all but certain. If it doesn’t, the limbo continues to hurt growth in any case.
But LLOY has stayed steady through the uncertainty so far, and there’s no reason to expect that the future will be any different. I would re-iterate that this share is a good one to have on the radar and buy it on the next dip to hold through 2020.
