The Motley Fool

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

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

Isn’t it great when one of your favourite companies turns into one of your worst ever investments? That’s what’s happened to me with Lloyds Banking Group (LSE: LLOY). The Lloyds share price has fallen more than 50% since I bought. And just when I was hoping for a better year in 2020, along came Covid-19 and hammered down any hope for recovery.

But if you’re tempted to buy at today’s depressed price, what do you need to know?

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...

I can see sentiment towards Lloyds being negative for some time to come. We’ve had the banking crash, an oil price slump or two, Brexit, Covid-19. And we’re now facing the worst recession for decades. None of that says anything positive for banking sector outlook. And with dividends suspended, we don’t even have any regular income to compensate for the dreadful performance of the Lloyds share price.

But that’s all sentiment, so are there any hard fundamentals that count against Lloyds right now? We’re likely to see earnings per share pretty much devastated this year, so it probably doesn’t make a lot of sense to rely on 2020 figures for any long-term planning.

Lloyds share price valuation

But based on 2019 results, the current Lloyds share price indicates a trailing P/E of just eight. That’s way below the FTSE 100‘s long-term average of around 14. Analysts expect Lloyds to get back to similar levels of earnings by 2021. Even if it takes a bit longer than that, we’re still looking at a very low eventual forward P/E. That suggests good value to me.

What about Lloyds’ price-to-book ratio? That stands at around 0.4 now, approximately two thirds of the current UK financial sector average. Again, that makes the Lloyds share price look cheap to me.

Cash and liquidity

Dividends? We really can’t guess at when the sector will be allowed to reinstate them. The regulators really do seem to be doing everything they can to ensure the banks make it through and are able to support our eventual emergence from the current recession. Maybe the suspension of dividends was needed, maybe it wasn’t. Either way, Lloyds has been sailing through the regular Bank of England stress tests with ease.

Had this Covid-19 pandemic hit us when Lloyds was recklessly overstretched along with its competitors, the Lloyds share price would surely have been hammered way harder. But as it is, I don’t see Lloyds as being in any actual danger now.

Maximum pessimism

I’ve examined my fellow Motley Fool writers’ opinions on Lloyds. And what I’m seeing is general agreement that Lloyds is in for a horrible year. But also the feeling that markets have overreacted and the Lloyds share price is undervalued.

I’m seeing a general consensus that Lloyds is a quality company run by very competent managers. That the Lloyds share price reflects the very worst possible outcome for every adverse factor affecting the banks. Oh, and that we could still face some serious volatility until Covid-19 and Brexit are finally behind us.

In short, I’m seeing a share price that reflects maximum pessimism. I reckon that’s the perfect buy indicator.

“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!

Alan Oscroft owns shares of Lloyds Banking Group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his 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 click below to discover how you can take advantage of this.