The Barclays (LSE: BARC) share price slumped in value earlier this year. The stock has struggled to recover ever since.
It’s clear why investor sentiment towards the lender has remained depressed. The coronavirus crisis has gutted the UK economy. Businesses have collapsed, and unemployment has rocketed. As a result, Barclays has had to put aside £4.3bn to meet potential loan defaults by customers.
However, while the outlook for the UK economy is uncertain, initial indications suggest things are improving. And that could be good news for the Barclays share price.
Better than expected
Last week, the financial services giant reported its figures for the three months to the end of September. Overall, the group reported a quarterly net profit of around £600m on revenues of £5.2bn.
Most importantly, however, the bank only set aside approximately £600m to cover additional loan losses. This was significantly below the £1bn of losses analysts were expecting. I think this shows that while the lender is still facing some headwinds, it’s in a vastly stronger position than it was six months ago.
Indeed, some analysts have started to speculate that, thanks to the improved financial position reported, Barclays may be allowed to restart dividend payments again. This could significantly improve investor sentiment towards the lender.
Barclays’ bottom line has seen a boost this year from its investment bank division. This arm, which helps companies raise money from investors, among other activities, has seen a surge in action this year as businesses rush to fortify their balance sheets. Overall pre-tax profits at the investment bank hit £1bn in the third quarter, more than covering the group’s additional Covid-19 related loan losses.
Barclays share price value
I think all of the above points to the conclusion that there’s light at the end of the tunnel for Barclays. While the coronavirus crisis continues to buffet the global economy, the lender has shown over the past six months that it’s strong enough to survive in this hostile environment. That bodes well for the bank’s future growth.
At the same time, I reckon Barclays’ latest trading update shows the firm’s outlook is improving. Reduced loan losses and rising profits appear to show the group has been able to pull through the worst of the storm.
Therefore, I think that one may benefit from buying the stock at current levels. Despite the group’s improving outlook, the Barclays share price continues to trade at depressed levels.
The stock is changing hands at a price-to-book (P/B) value of just 0.3, that’s below the sector average of 0.6. The market appears to be waking up to this fact. The shares have already increased in value by 20% over the past few weeks. As such, I think time may be running out to buy the Barclays share price while it continues to trade with a margin of safety.
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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.