Even before the pandemic struck, FTSE 100 banking giant Lloyds Bank (LSE: LLOY) was already facing a share price challenge. After finishing 2019 with a bang, the Lloyds Bank share price started sliding downwards at the start of 2020.
When coronavirus struck, matters got even worse, like for many other stocks. The situation improved only in November, when the broad-based stock market rally started. By the end of the month, the Lloyds Bank share price had risen more than 27% from October end. It continues to inch up even now and, as I write, it’s at 38p.
At these levels, it’s a hair’s breadth away from 40p; but to my mind, the really interesting question is — can it go up to 50p? The reason it’s interesting is that it was above 50p pre-pandemic. So if it now goes back up, it would have erased all investing losses from the coronavirus. I reckon that would be a huge sigh of relief for investors that have been holding on to Lloyds Bank for a while.
Why LLOY can rise higher than 50p
I think it’s very possible that it can happen. Bullish investors are looking for cheap shares. At least from the looks of it, the Lloyds Bank share price is quite low. With the Pfizer Covid-19 vaccine expected to arrive in the UK shortly, the bull run will quite likely continue to drive up its share price.
It’s also hoped that the Bank of England will give a go ahead to banks and insurers to start paying out dividends before the year ends. That will also elevate the Lloyds Bank share price, which plunged in April after it withdrew dividends. Its high dividend yield was a big draw for income investors, despite its indifferent share price trend. Improvement in economic activity in 2021 should also bode well for banks.
The next big question for LLOY
So if you are a short-term investor, then Lloyds Bank may be just your stock pick. Its share price may well rise above 50p. The next question though is: Can it stay above 50p?
My wariness of LLOY has always been about its long-term prospects. And that persists. Consider its earnings ratio at 38 times. For a company that was seeing some tough times recently, it appears quite high to me. The FTSE 100 consumer goods giant Unilever, whose performance has been far more consistent, has a ratio of 18, for instance.
Further, economic recovery could be hampered by Brexit disruptions. Lloyds could be hit harder than other banks, being more focused on the UK. Even otherwise, the economic recovery could have a muted impact on LLOY. Its past share price trends aren’t inspiring either.
In sum, I see a short-term case for Lloyds Bank right now. But I think that the share price rally could be followed by a fall to more sustainable share price levels.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Unilever. 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.