After such a dizzying run-up — one of the highest gains across the entire FTSE 100 index — you could be forgiven for thinking the party might be over and the best of the returns from Barclays have been and gone. Well, guess what? Maybe it’s just getting started…

Ratings

One reason to think so is the spectacular ratings on Barclay from analysts at the moment. Of the 19 analysts covering the stock, there’s not a single Sell and nearly 90% are either Buy or Outperform ratings.

The share price forecasts look pretty impressive too. The consensus target is for a 32.1% increase over the next 12 months and on the high end we have a 44.3% increase. There aren’t many Footsie stocks that can say that.

An investor who was still hanging on to the £2,630 would see it shoot up over the next year if those targets are on the money. The consensus would turn the sum into £3,474 by April 2027, and the highest target would turn it into £3,795.

That’s not mentioning dividends either. The forecast dividend yield stands at a healthy 3.5%. That’s around the FTSE 100 average at the moment.

What next?

How likely are these predictions going to be? Well, the conflict in Iran will have some impact here. The consequences like pricier energy and increasing inflation could dampen the global economy, which tends to be bad for banks. The Barclays share price has already dipped 18% since just before the start of the conflict. It’s anyone’s guess how long or impactful that particular issue will be however.

It also should be mentioned that analyst ratings for the banking sector can sometimes be quite optimistic. And analyst ratings in general aren’t close to being any kind of guarantee.

In among it all, there’s plenty to get excited about in terms of fundamentals. The forward price-to-earnings ratio is only 7. It’s pretty hard to find that kind of value in any sector these days. It could be a strong sign that Barclays shares are still undervalued.

Earnings are set to continue rising too – and might get an extra boost if we see interest rates stay high or even increase in the coming years. And a new round of £1bn buybacks could see some upward movement from the share price. I’d say the shares are worth considering at the current price.

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Right now, the two have astonishing similarities. In fact all the big UK banks do, as their shares have flown across the board in recent years.

Higher interest rates have driven up net interest margins, the difference between what they pay savers and charge borrowers. It’s a key profit metric. Barclays and Lloyds both made a heap of money in 2025, with pre-tax profits of £9.1bn and £6.7bn, respectively. Profits grew at similar speeds too, 13% and 12%.

FTSE 100 rivals compared

Both announced generous share buybacks, of £1bn and £1.75bn. Share price performance has been very similar too. Last week, as investors gather them over Iran, Barclays and Lloyds shares both climbed 6%. Over 12 months, they’re both up around 36%.

However, Barclays has done notably better over three years. It’s up 180% in that time. Lloyds climbed 105%. In a way, I’d expect that, because there’s a key difference between the two. Lloyds is a pure play on the UK economy. It’s focused on domestic retail and commercial banking, with a big exposure to mortgages and UK consumers.

Barclays is far more diversified. Alongside its UK operations, it has a significant international presence and investment banking division. Its shares are therefore more exposed to global markets and deal-making activity. This makes it riskier, but potentially more rewarding too. Despite that, both have surged the same interest rate wave, then slowed as valuations started to look stretched and interest rate expectations stabilised.

But following solid 2025 results, both look reasonably priced again. Barclays is the cheaper today, with a forward price-to-earnings (P/E) ratio of just 7.75. Lloyds is a little pricier at 9.95. That low P/E has me itching to buy Barclays. Then I remember that it’s exposed to the private equity and shadow banking market, which is under pressure right now. Something I don’t have to worry about with Lloyds.

Banking stock lookalikes

So what about income? Lloyds has the more generous and progressive dividend policy, while Barclays prioritises buybacks. As a result, Barclays’ trailing yield of 2.21% is beaten by Lloyds, which yields 3.73%. On a forward basis, they yield 3.5% and 4.3%, respectively. Personally, I prefer dividends hitting my account, although I’m not averse to the odd buyback or two. Lloyds has also been active on that front.

There are so many similarities. Both are sensitive to economic cycles, although I’d say that Barclays is likely to climb faster during the good times, and fall faster when the market turns. We’ve seen that lately. Barclays shares are down 15% over three months, but Lloyds shares are flat. Which may explain that lower Barclays P/E.

If I did buy Barclays, it would introduce a different mix of risks and very new streams. It’s not massive diversification, but spreads my bets within a sector that I like. At today’s low valuation, I think Barclays shares are impossible to resist. It’s at the top of my Buy list.

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Let’s see what’s going on.

Delving deeper

Like many FTSE firms, Barclays has been affected by the conflict in the Middle East. But the bank’s shares were falling before the first missiles were fired. On 3 February, the share price reached a 52-week closing high and has since been drifting downwards.

Some of this can probably be explained by a bit of profit taking. After all, the February peak was also the highest the bank’s share price has been since 2017, just before the start of the global financial crisis. However, the extent of the dip suggests there’s more going on than a few investors cashing out.

In fact, it appears to coincide with increased concerns about the state of credit markets, particularly in the US. According to Russell Investments, interest coverage for loans has fallen from 3.2 times in 2021, to around 1.5 times now.

But it’s not just in America where fears have been raised. In its global stability report, the International Monetary Fund claims that 40% of private credit borrowers have negative free cash flow.

Significant loan defaults would be bad news for the global economy, but also for Barclays. At 31 December 2025, it disclosed £430bn of lending on its balance sheet.

UK exposure

Closer to home, the bank’s heavily reliant on a domestic economy that the OECD claims could be one of the hardest hit if the closure of the Hormuz Strait continues for much longer.

Last year, Barclays said it was allocating more capital to the UK, where it already has 20m retail customers and claims to process over 40% of the country’s debit and credit card transactions.

Cheap on paper

A closer look at the group’s numbers suggest that its shares offer excellent value. Of the FTSE 100’s five banks, it has the second lowest historic price-to-earnings ratio and the lowest price-to-book ratio.

In 2025, it reported a return on tangible equity – a key measure of profitability — of 11.3%. It’s now set a target of “greater than 14%” by 2028.

From 2026-2028, it plans to return at least £15bn to shareholders through a series of share buybacks and dividends. To illustrate the significance of this number, Barclays’ current market-cap is around £53bn.

My view

Personally, I think the group’s shares are cheap. Others agree. Analysts have a consensus 12-month target that’s around 40% higher than today’s share price.

Importantly, Barclays is more than just a high street bank. In 2025, nearly 45% of its income came from its investment arm. When the war in the Gulf ends — hopefully, soon – this part of the business is likely to be in a position to pick up a few bargains. In the short term, this division could experience some earnings volatility but in a few years’ time, it could be booming.

For these reasons, I plan to hold on to my shares. Other investors looking to take a position in the sector could consider buying some for their own portfolios.

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Despite a tougher macro backdrop with the ongoing conflict in the Middle East, the group continues to deliver resilient earnings. It is also strengthening its balance sheet and returning capital to shareholders at a healthy rate.

As such, I think it looks like a classic short-term risk/long-term reward play to consider, with a big gap between its current price and its true value. The difference between these two is where big profits for long-term investors can be made.

So how high can the stock go?

Undervalued against its peers?

Beginning with comparisons to its competitors, Barclays’ price-to-sales ratio of 2 is bottom of its group, which averages 3.2. These firms comprise Standard Chartered at 2.4, NatWest at 2.9, Lloyds at 3, and HSBC at 4.4. So, it looks very undervalued here.

The same is true of its 8.9 price-to-earnings ratio against the 11.4 average of its peers.

And it also looks a bargain on its 0.7 price-to-book ratio versus its competitors’ average of 1.1.

Genuinely undervalued?

I ran a discounted cash flow analysis to try to pinpoint the true value of Barclays’ shares. This identifies where any stock should be priced — its ‘fair value’ — based on the fundamentals of the underlying business.

To achieve this, the DCF modelling projects a firm’s future cash flows and discounts them back to today. Some analysts’ modelling is more conservative than mine, depending on the inputs utilised.

Nonetheless, based on my own DCF assumptions — including an 8.4% discount rate — Barclays shares are now 58% undervalued at their current £4.08 price. This implies a fair value for the shares of around £9.71 — more than double where it trades today.

Share prices often converge to their fair value over time. So the gap here suggests a potentially terrific buying opportunity to consider today if those DCF assumptions hold.

Supported by strong growth momentum

Earnings growth is the key driver for share price gains over the long run. A risk to Barclays is a sharper-than-expected slowdown in the UK economy, which could worsen its bad loan book. Another is persistently high inflation and elevated gilt yields, which could keep its funding costs high.

Nevertheless, analysts forecast Barclays’ earnings will grow an average of 8.2% a year to end-2028. This looks well supported by its 2025 results, which saw profit before tax (PBT) jump 12.3% to £9.1bn. Meanwhile, return on tangible equity (ROTE) — a key profit measure for banks — rose 0.8 percentage points to 11.3%.

Looking ahead, management upgraded its ROTE target to above 14% by 2028 (from more than 12%). It also announced a £1bn share buyback, which tend to support share price gains.

My investment view

The gap between Barclays’ short-term risk and long-term rewards looks to me like it could close over time on strong earnings momentum. Consequently, I think it well worth the attention of long-term investors looking for share price gains.

I already have holdings in two banks — HSBC and NatWest — and owning another would unbalance my portfolio’s risk/reward balance. However, other bargain-basement opportunities have caught my eye, with several also generating high dividend income as well.

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It’s fair to say that things didn’t pan out as expected in Q1. Here’s a look at how much £10,000 invested in Barclays at the start of the year would be worth now.

The share price has tanked

Barclays’ shares ended 2025 at 476p. So let’s say that someone invested £10,000 at that share price. Today, that money would be worth about £8,100, because the share price has fallen around 19% to 386p (as I write Tuesday 31 March).

I’ll point out that anyone who bought shares at the start of the year would have received a small dividend of 5.6p per share. This was also paid on 31 March, offsetting the share price loss, but not by much (only around 1%).

Multiple problems in 2026

What’s gone wrong here? A number of things. For a start, the financial environment has changed dramatically. As a result of the Iran conflict and the spike in oil prices, the chances of an economic slowdown (perhaps a recession) have increased.

This has impacted a lot of stocks but banks have been hit particularly hard as they’re quite cyclical. When the economy takes a downturn, these institutions tend to see less loan growth and more loan defaults which tends to translate to lower profits.

Another issue is that Barclays had some exposure to collapsed lender Market Financial Solutions (MFS). The bank’s reportedly looking at losses of around $660m (about £500m) here.

A third issue is that digital bank Revolut has been granted a UK banking licence. This means that there’s a whole new source of competition for traditional plays like Barclays.

On top of all this, there’s AI uncertainty. Right now, many companies are laying off staff due to AI and this trend continues, so it’s possible that we could see a spike in mortgage defaults.

Can the stock bounce back?

Is there potential for a rebound in 2026? I think so.

But for the share price to head back towards 500p, I think we’d need to see:

• An end to the conflict in the Middle East (soon).
• A fall in oil prices.
• Strength in the equity markets.
• Robust levels of capital markets activity (eg IPOs).
• An easing of the stress in the private credit markets.

If one or more of these variables were to go against us, the shares could struggle.

I do think the shares are worth considering at current levels though. There’s obviously some risk but with the share price already down 19% year to date, and the stock trading at seven times forecast earnings, the risk/reward proposition looks relatively attractive to me.

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However, the stock’s now down around 25% from its highs reached in late January and early February. I hadn’t forecast the slide, but I did start trimming my Barclays position around that time — and exited Lloyds entirely. Both had been long-term holds, with much of the position built during pullbacks like the Silicon Valley Bank crisis.

My sell-off

So why did I start selling? It was a valuation issue and an artificial intelligence (AI) issue. UK banking stocks have received several re-ratings in recent years and the multiples commanded simply started looking a little punchy for me. And it’s all relative. Banks reflect the health of the local economies and, let’s face it, the UK economy’s suffering.

For context, on 1 February, Barclays’ shares were trading around 9.1 times forward earnings. That’s double where they were during the Silicon Valley Bank fiasco. Earnings have improved considerably, and that was still a discount to American peers, but investors have to consider how much the market is really willing to pay for a British bank — that could have been the top end.

Today, the bank trades around 6.9 times forward earnings. As an entry point, that looks a lot more attractive. Even the dividend yield is now pushing 3.8%. In short, from a valuation perspective, much of the excess has been squeezed out. The stock now sits some 40% below its average share price target.

The second part, as I mentioned, was AI. As a well-circulated memo suggests, AI “has the capacity to revolutionise the world of business, and that probably will mean widespread white-collar layoffs”.

White collar workers represent a considerable proportion of discretionary spending in the UK and US, and therefore job losses in this part of the economy could have a considerable impact on the rest of the economy — from mortgage defaults to spending in pubs. All of these secondary effects will impact banks.

What about now?

As noted above, plenty of the froth has been taken out of the valuation. And that will undoubtedly make it more appealing to value investors. And despite my concerns about the economy and AI risk, some investors will find cause to be optimistic from here.

For one, 2026 has been billed as the year of mega IPOs. This, coupled with the volatility created by the war in Iran, should deliver a particularly good year for Barclays’ investment banking operations.

Personally, I’m holding what’s left of my position — but I’m in no rush to rebuild it. The valuation case is certainly worth considering. I just think there are more compelling opportunities elsewhere right now.

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Intrinsic value

Billionaire investor Warren Buffett likes to build stakes in companies whose share prices don’t reflect the underlying (he calls it the “intrinsic”) value of their businesses. This involves making an assessment of the expected future operating cash flows and then adjusting these to reflect the fact that £1 in a year’s time is worth less than it is today.

This is a common approach used by analysts and helps them come up with price targets for the stocks they cover.

A banker?

Brokers’ consensus is that Barclays (LSE:BARC) is 42% undervalued at the moment (31 March). However, their wide range of estimates (450p-590p) is proof that valuing companies is more of an art than a science. Having said that, even the most pessimistic believes the bank’s shares are 18% under-priced.

Why? Well, it appears to be on a bit of a roll at the moment. Its 2025 earnings were 13% higher than in 2024. It’s now aiming for a return on tangible equity of at least 14% in 2028. It was 11.3% in 2025. Also, via dividends and share buybacks, the bank hopes to return more than £15bn to shareholders over the next three years.

Threats include an economic slowdown, particularly in the UK and US. Also, falling interest rates could affect its margin.

But with a price-to-book ratio of less than one and the second lowest price-to-earnings (P/E) ratio of the FTSE 100’s five banks, I think Barclays looks pretty cheap at the moment and could be considered by value investors.

Uncertain times

Hikma Pharmaceuticals‘ (LSE:HIK) shares tanked in February after the drugs maker withdrew its medium-term guidance and downgraded its earnings forecast for 2026.

The group’s injectables business is currently struggling. It’s facing increased competition for some of its higher-value products. And tariffs on its imports into the US have been an issue.

However, I’m confident that its business will recover. It’s investing heavily and has 118 products in its pipeline. What’s more, the stock’s P/E ratio’s now at a five-year low. Also, it offers an above-average dividend (no guarantees). Further, analysts reckon the stock’s 48% undervalued.

But this is a turnaround story. Its share price is likely to be a bit of a slow burner. However, I still think it’s worth considering.

Cheers!

Diageo’s (LSE:DGE) also seeking to recapture former glories. It’s battling industry-wide trends of people drinking less and a move towards more expensive labels.

But with a reputation for cutting out the fat and streamlining businesses, I reckon the group’s new boss, Sir Dave Lewis, is just what’s needed. And he has some solid foundations on which to build.

The group owns some of the biggest brands in the business, including Guinness and Smirnoff. It also covers all price points in its key markets. Despite its troubles, it remains the world’s number-one for spirits.

Analysts have a target that’s 43% higher than today’s share price. Remarkably, Diageo’s shares are now changing hands close to a 14-year low. On balance, I think it remains one for patient investors to consider.

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There’s a positive though. All three are cheaper as a result, and yield more. Time to consider buying them?

Last month was tough for the FTSE 100 as a whole. The UK’s blue-chip index fell into correction territory, defined as a drop of more than 10%. There’s no way banks were going to escape the turmoil.

NatWest and Lloyds are heavily exposed to the UK, which offers little protection right now. The OECD has warned Britain could be the worst hit major economy. Barclays has a broader international footprint, thanks to its US corporate and investment banking operations, and Middle East expansion plans. That diversification adds excitement, but widens the risks.

Volatile FTSE 100 sector

If the crisis drags on, higher interest rates could squeeze households and businesses, pushing up bad debts. Mortgage costs may rise too, hitting demand and slowing activity across the housing market.

There’s a positive angle too. All three have benefited from higher interest rates in recent years, which boosted net interest margins, the gap between what they pay savers and charge borrowers.

That was expected to fade as inflation dropped towards 2%, allowing the Bank of England to cut base rates. This seems unlikely now. Rising oil and gas prices could push inflation back towards 4%, delaying cuts and extending that margin boost.

There’s another advantage. The recent sell-off has made all three banks cheaper on a price-to-earnings basis. Barclays trades on just 9.1 times earnings, well below the FTSE 100 average of around 17. NatWest looks even cheaper on 7.9, while Lloyds is pricier at 13.3.

Dividend yields have climbed as share prices have fallen. Barclays has a trailing dividend yield of 2.25%. That’s the lowest of the three, although it prefers to return cash via share buybacks. NatWest offers a meaty 6% yield, while the trailing Lloyds’ yield has crept back above 4%.

Low P/Es, high yields

Forecasts suggest more growth to come. NatWest’s yield is tipped to hit 6.57% in 2026 and then climb to 7.39% in 2027. Lloyds is expected to yield 4.7% and 5.56% respectively. Even Barclays is forecast to pay income of 3.75% in 2026, rising to 4.51% in 2027. These aren’t guaranteed and could be cut if the crisis intensifies.

The share price forecasts are even more eye-catching. Analysts see Barclays hitting 539p within a year, a potential gain of more than 40%. NatWest has a target of 738p, up almost 37%. Lloyds is forecast to reach just over 118p, a rise of around 31%.

These are striking numbers, but they’re only forecasts. Also, most of them are likely to have been made before the Iran conflict, so they don’t reflect today’s share price drops, or increased risks.

Personally, I think all three banks look terrific value and worth considering with a long-term view. Buying today takes nerve though. A sensible approach might be to drip feed money in over several weeks. If they fall further, consider buying more.

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Yes, the Barclays share price is up 110% since the end of March 2024. That means £5,000 invested back then is now worth £10,500. And even the horrific events in the Middle East, with the resulting surge in oil prices, are only enough to take Barclays shareholders back to the price of late October 2025.

As an aside, I see those who managed to buy Barclays shares immediately after the big pandemic crash in early 2020 are now sitting on a five-bagger. That’s enough to turn £5,000 into £25,000 — I know the sums aren’t difficult, but it’s so good it’s worth stating.

Cool heads prevail

I’m not using these dates to suggest we should try to time the market. No, it’s not how most successful investors operate. In fact, for most of us it’s probably more likely to damage our returns. Buying and selling whenever we think we see a bottom or a top costs money in charges. And that’s on top of likely losses through poor timing.

Instead, let’s remember a couple of things long-term Foolish investors know only too well. Investing in quality companies for the long term, while ignoring short-term ups and downs, can be very profitable. And a market downturn can be our friend, not our enemy.

Maybe the first impulse that should come to our mind when we see a favourite stock fall is the famous: “Don’t do something, just stand there.” There’s almost never any need to rush into rapid action. You know, like the knee-jerk sellers back in 2020 who presented us with such a brilliant buying opportunity.

What to do now?

That brings me to today’s big question. Is this latest fall in Barclays shares another buying opportunity? I think it might be. Bank stocks and other financials tend to be among the first casualties of a stock market sell-off. And in my view, they’re some of the best to consider for recovery.

Barclays isn’t such an attractive dividend stock these days. Not with share price rises of the past couple of years pushing the forecast dividend yield down to just 2.2%.

But what does a forward price-to-earnings (P/E) ratio of only 7.3 say to us? And what if it drops as low as 6.2 in 2027 as forecasts suggest? I know forecasts are uncertain at the best of times. And at times of global crisis, they can be up in the air. But I don’t expect significant damage to Barclays’ prospects for the next five years and more.

To me this does look like a good — if unexpected — opportunity to consider buying.

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The thing is, Barclays’ share price is still 23% higher than it was 12 months ago. And so it still commands what is a sky-high valuation by normal standards. Could this cause the bank to continue toppling? I think so.

Pros and cons

With oil prices surging, expectations of soaring interest rates to control inflation are steadily increasing. There’s currently talk that the Bank of England may hike UK interest rates as many as four times in 2026. Only time will tell if this is an accurate foretelling.

Higher interest rates are on the one hand good for Barclays. It allows the bank to charge more interest on products like mortgages and credit cards, while typically increasing the rates it pays on savings more slowly. This difference in net interest margins (NIMs) is a huge boost to retail banks’ bottom lines.

However, in the broader scheme of things higher interest rates are a big negative for the banks. And especially in places like the UK, where a cost-of-living crisis is already raging. In this landscape, income growth could slump or even reverse as consumers cut back and businesses feel the pinch. It’s also possible the number of bad loans on banks’ books will surge.

Red lights flashing

But isn’t all this reflected in Barclays’ recent share slump? Not necessarily, as economists continue to grapple with the potential consequences of the Middle East conflict. What’s clear is the direction of news flow is extremely worrying for the banks.

Today (26 March) was the turn of the OECD to set the red lights flashing again. It suggested the UK will be one of the worst-affected countries, and slashed its growth forecasts to 0.7% for 2026. The body had tipped expansion of 1.2% as recently as December.

This is troubling for Barclays, as it sources around half of profits from these shores. In better news, the OECD raised its 2026 growth forecast for the US to 2% from 1.7%.

This is another key market for the bank. But for me, the prospect of worsening conditions in Britain — along with growing pressure in its investment bank as financial markets share — far outweigh the good news here.

The longer the Middle East conflict endures, the worse the outlook will become. And the problem is there seems to be no clear route to de-escalation for the US, Israel, or Iran.

Bottom line

As I mentioned above, the FTSE 100 bank still carries a hefty valuation today. Its price-to-book (P/B) ratio — which measures the share price against the bank’s asset values — is currently 0.8, which is double normal levels.

This in my opinion provides even more scope for a share price crash. In the current climate, I think investors should consider avoiding Barclays shares.

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