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Stock market crash: what I’m doing about the falling Barclays share price

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The Barclays (LSE: BARC) share price crumbled in the recent stock market crash.

Shares in the lender plunged by around 50% between the end of February and the end of March. After these declines, the stock is trading at one of its lowest levels in recent history.

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However, while the stock looks cheap on the surface, its underlying business is facing some significant headwinds, which could hold back its recovery.

With that in mind, today, I’m going to take a look at the business to try and conclude whether or not the Barclays share price is worth buying. 

Time to buy the Barclays share price?

Investor sentiment towards the lender has soured in recent months due to the coronavirus crisis.

It’s easy to understand why. The UK economy is facing one of its most severe economic downturns on record. As one of the largest banks in the country, Barclays will be impacted by the crisis. It has already taken a multi-billion pound loan impairment charge, which could be a sign of things to come. 

These losses will weigh on group profits. They could also weaken the balance sheet.

As such, I think it’s reasonable to say that Barclays is worth less today than it was at the beginning of the year. On that basis, some of the recent declines seem warranted. 

Having said that, after the recent slump, the Barclays share price is currently changing hands at one of its lowest valuations in recent memory.

The stock is selling at a price-to-book (P/B) value of just 0.3. That’s compared to the broader banking sector average of 0.6. 

To put it another way, even though economic headwinds may hold back the bank’s growth in the near term, the stock appears to be undervalued by around 50%. 

Stock market crash bargain

Considering all of the above, I think the Barclays share price could be an excellent addition to a diversified portfolio.

In the long run, the lender will remain one of the UK’s top financial institutions. When investor sentiment towards the business begins to improve, the stock could double from current levels. The potential reward seems to be worth the risk of further instability in the near term, in my opinion. 

Barclays was also an income champion before the crisis. Earlier this year, regulators asked banks, to put their dividends on ice to try and preserve capital in the coronavirus crisis.

In its last financial year, Barclays paid investors a 3p per share dividend. A similar distribution in 2021 would provide a dividend yield of around 3% on the current share price. That could be extremely attractive in the current interest rate environment. 

Therefore, I think it could be worth buying the Barclays share price today. The stock may face further volatility in the near term, but its current valuation and dividend potential, suggest it could produce large total returns for investors in the long run. 

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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.

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