The Barclays (LSE: BARC) share price has fallen a staggering 44% year-to-date. Following this decline, the stock looks cheap compared to history.
Indeed, it’s now trading at one of its lowest level since the depths of the financial crisis.
This seems unwarranted. Clearly, the coronavirus crisis will have a severe impact on the lender, but most analysts agree that it is unlikely any bank will come close to collapse, as they did in 2008/09.
As such, after recent declines, now could be a good time for long-term investors to snap up Barclays shares.
Barclays share price: under pressure
At the end of April, Barclays reported its results for the first quarter of 2020. The bank earned just £605m in the period. That was lower than the £810m predicted by analysts.
Included in these results was £2.1bn of credit impairment losses. These were a result of a “forecast deterioration in macroeconomic variables, including expected peak unemployment levels and troughs in GDP for the UK and US economies,” as a result of the coronavirus crisis.
Management is expecting the crisis to have a significant impact on the bank’s bottom line. This could continue to weigh on the Barclays share price. However, it’s notable that the business is still profitable.
Even after accounting for these loan losses, Barclays still reported a positive result for the first quarter.
This suggests that while the lender is experiencing a tough time, it’s nowhere near as bad as it was in the financial crisis.
What’s more, Barclays’ trading and investment business is experiencing a boom in demand. Trading revenue increased by 77% during the first quarter of 2020. This jump helped offset some of the decline in earnings at the rest of the business.
It seems highly likely that both of these trends will continue. It looks as if the global economy is set for an extended period of instability. And we don’t know how long it will be before markets, the Barclays share price and the economy recover.
An extended downturn could lead to increased loan losses for Barclays, although additional market volatility will mean higher trading revenues.
Buying for the long term
An extended period of uncertainty may mean that the Barclays share price remains depressed in the near term.
Nevertheless, the fact that the group remains profitable is positive. Further, after recent declines, Barclays shares are trading at a price-to-book (P/B) ratio of just 0.25.
In a typical environment, a stock deserves to trade at a P/B of less than one if it is losing money. Barclays isn’t losing money. With that being the case, there’s a good chance shares in the lender could rise 300% from current levels.
Therefore, now could be an excellent time for long-term investors to snap up Barclays shares. The group is one of the largest banking institutions in the UK, and it doesn’t look as if this is going to change any time soon.
As investor confidence returns, the figures above suggest that the stock could return more than 300% from current levels.
Don’t miss our special stock presentation.
It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.
They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.
That’s why they’re referring to it as the FTSE’s ‘double agent’.
Because they believe it’s working both with the market… And against it.
To find out why we think you should add it to your portfolio today…
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.