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Should you buy the Lloyds share price?

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The Lloyds share price has tumbled 56% since the start of the year. That’s a staggering drop that far exceeds the near 30% average for the FTSE 100 index.

Blue-chip banks in the index have been particularly hard hit in the stock market crash. What’s more, last week’s announcement that dividends would be suspended didn’t help the situation.

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I’m afraid it’s bad news for pension funds and income investors. But what about the future of Lloyds’ share price? Might there be some value to be had?

You may have heard the phrase “the only way is up” when referring to stocks that have plunged. Let’s see if that might apply to the Lloyds share price.

Rock bottom share price

Lloyds’ share price hasn’t been this cheap since 2012, shedding over 60% of its value since the start of 2018.

The bank’s price-to-earnings ratio now sits at 8, substantially lower than just a few months ago. For me, that’s an attractive valuation for the Lloyds share price.

The most recent plunge came after UK banks suspended dividend payments amid the coronavirus outbreak – a sensible move to preserve vital cash in a period of economic disruption and uncertainty.

With this event factored-into Lloyds’ share price, I think it may be nearing rock-bottom. If so, there’s undoubtedly significant value to be had, as long as the bank can weather the storm.

Survivability prospects

The very venerable Lloyds has been under pressure for a while, especially with the global financial crisis a little over a decade ago and PPI provisions to take into account. But the bank has been through it all in its long history, always managing to come out the other side.

In general, the UK banks are in a much stronger financial position than they were in 2008. Back then, many had to be bailed out as a result of widespread defaults.

What’s more, unlike the 2008 financial crisis, the fault in the 2020 stock market crash doesn’t lie with the banks. The global pandemic has largely been the catalyst for the economic uncertainty and market volatility.

I share the opinion of the experts at Shore Capital who recently said: “We think that the UK banks entered this crisis well positioned to weather the storm with well-capitalised, well-funded and liquid balance sheets”.

In my opinion, Lloyds definitely fits that description.

Is it the right time to invest?

Now that Lloyds can better preserve its capital, the bank should be in a feasible position to continue lending to small businesses.

However, with the prospect of many companies having to file for bankruptcy as a result of the impact of Covid-19 on business, this could eat into the bank’s profits.

Yet ultimately, if Lloyds can continue to support businesses in a sustainable and cash-efficient way, there’ll be no need for bailouts or any government support.

In that case, investors will regret not piling in to the Lloyds share price while it was at record lows.

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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

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