The Barclays (LSE: BARC) share price has recovered fairly well from its lows last year. Indeed, a rise of 100% represents a very strong performance for a company in a struggling sector right now. But it must be pointed out that at yesterday’s close of almost 154p, it’s still less than the 177p it was at a year ago.
The bank has performed resiliently though, in part due to strong performance from its investment bank. This has allowed it to outperform many of its rivals, including Lloyds and HSBC. But after its rise, do I think that the Barclays share price is still cheap, or are the risks too great for me to buy more of its shares now?
Considering the circumstances, Barclays has managed to deliver strong profits throughout the pandemic. For instance, first-to-third-quarter profits before tax totalled £2.4bn, in comparison to £3.3bn the year before. Although profits have fallen from the previous year, this was to be expected. It’s evident that the Corporate and Investment Bank has been the driving force. The company saw £9.8bn in revenues within this area (a 24% increase from the previous year). Results from Barclays UK were weaker and its profits before tax were only £300m, as opposed to £1.9bn the year before.
With Barclays having strongly relied on the investment bank for profits — rather than seeing a more balanced performance across the firm — there’s always the chance that this one division may underperform in the future. Full-year results are fast approaching and the investment bank may not be able to continue such a strong run. As a current shareholder, this is something I have to prepare myself for.
What are the other risks?
Although the Bank of England has provided positive updates on how it expects the economy to rebound, it has also raised the possibility of negative interest rates being implemented. This may help boost spending, but it could also deter people from putting money into banks and so dent the profits to be made from lending. It’s therefore a risk to be considered when evaluating the Barclays share price.
In addition to this, there’s also the poor wider economic conditions to consider. Recent figures suggest unemployment in the UK of around 5%, with many different companies struggling to stay afloat. This is likely to increase the number of defaults and could also strain Barclays ‘profits.
What am I doing with Barclays shares?
As a current investor, I have no intention of selling. Firstly, Barclays has a price-to-earnings ratio of around 12, and this indicates that the stock may still be slightly undervalued. In addition, its global presence should help it avoid some of the negative effects associated with Brexit and allow it to benefit from US financial stimulus.
The future also looks fairly bright for the business, I feel. Its balance sheet seems robust, and dividends are set to return in the near future. Although some of this optimism is reflected in the current Barclays share price, I’m still a big fan of the company. Of course, future performance is dependent on a number of factors outside of the firm’s control. But as a current investor, I’m going to hold for the long term.
Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays, HSBC Holdings, and 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.