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Is the Barclays share price now a bargain or a value trap?

The Barclays (LSE: BARC) share price has fallen a staggering 25% year-to-date, underperforming the FTSE 100 by around 10%.

After this decline, the stock looks attractive as a value investment. But as the global economic outlook remains uncertain, is now really a good time to buy the Barclays share price? 

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Barclays share price 

Between the beginning of the year and the middle of March, the Barclays share price slumped 50%. Investors feared that lockdowns, designed to try and contain the coronavirus outbreak, would cripple the global economy.

The outlook has improved steadily since the stock bottomed in the middle of March. Economic activity has started to pick up again, and it doesn’t look as if any major bank will collapse, as they did in the financial crisis more than a decade ago.

Central banks around the world have been pouring money into the global financial system, which has also helped reassure investors that the worst is over. 

However, lower interest rates are also making it harder for banks to earn a profit. Rising loan losses are also eating away at groups’ bottom lines. This is likely to mean the Barclays share price will struggle to recover to pre-coronavirus crisis levels in the short term. 

This doesn’t mean Barclays will never be able to return to pre-crisis levels of profitability. The bank is one of the world’s largest financial institutions. As a result, it should see its bottom line grow as world trade recovers.

The lender has also recently seen a substantial increase in profits from its financial markets division. Barclays is one of the few large banks that still operates a large investment bank. This provides diversification as well as giving it a competitive advantage over peers. 

So, while the group might struggle to return to pre-crisis levels of profitability of the next year or two, the Barclays share price seems to be well-positioned to benefit from global economic growth over the long run. 

A margin of safety

With the Barclays share price down by more than a quarter since the beginning of the year, it appears to offer a wide margin of safety at current levels.

Research shows that investors who buy shares with a wide margin of safety tend to outperform over the long term. The margin of safety acts as a cushion between the share price and further fundamental pain, which Barclays may suffer if the coronavirus crisis continues into 2021. 

Nevertheless, at this stage, it’s impossible to tell how long the crisis will last. As noted above, the group has solid long-term growth potential.

Therefore, it may make sense to buy the shares when they look to offer value, rather than trying to predict the future. As such, now may be a good time to buy the Barclays share price as part of a diversified portfolio.

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Rupert Hargreaves has no position in any of the shares 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.