The Metro share price is down a disappointing 15% over five years. But part of that is due to a painful crash in late 2023. Back then, the bank was losing money, and was offloading assets in order to stay afloat.

Metro’s IPO in 2016 had been an acclaimed success, and the shares reach a price of over £40 at the peak. Today we’re looking at a 97% wipeout since those days. But from the low point of 2023, the shares have already more than quadrupled. And there could be more to come.

Full-year 2025 earnings are due on 4 March, with earnings per share (EPS) expected to increase 28%. And forecasts suggest a further trebling by 2027. We might even see a dividend in 2027 — only a small one, but maybe the start of something good.

Banking bonanza?

Based on analyst forecasts, Metro shares are on a price-to-earnings (P/E) ratio of 16. That seems a bit high even by FTSE 100 bank standards, never mind smaller FTSE 250 challenger banks. By comparison, even after Lloyds’ sparkling few years, we’re still looking at a P/E there of under 11 — and I reckon that’s close to fully valued now.

But even if Metro’s predicted EPS rise comes off when we have those results, analysts still expect a further trebling on top of that by 2027. It could push the EPS up almost fourfold from the last set of results we currently have, from 2024.

Can Metro live up to expectations on 4 March? At the time of November’s third-quarter update, the bank reaffirmed “all guidance for FY 2025 and beyond“. CEO Daniel Frumkin added: “We have the lowest cost of deposits of any UK High Street bank, and our exit net Interest margin is already within full year guidance range.” The chances look good to me.

Better than Lloyds?

Lloyds is no slouch on the forecast front, with EPS expected to climb around 70% by 2027. And if that’s what happens, we could see a P/E of around nine by then. Depending on how the outlook is faring — interest rate cuts could damage Lloyds’ lending profit — that could be cheap. And if it drops under eight in 2028 as forecast, I’ll consider topping up my Lloyds stake.

But right now, I think Lloyds shares have moved off my list of potential buys in 2026. And Metro Bank is a definite candidate for a little of this year’s ISA money. If I buy, it’ll only be a small amount, because of the higher risk that smaller banks face. They don’t have anything like the financial resources to battle through an economic downturn with the relative ease Lloyds and the other big ones can.

Should investors consider putting a bit into Metro Bank in 2026? I think they might do well to.

The post Forget Lloyds shares, this bank’s earnings could treble by 2027! appeared first on The Motley Fool UK.

Here, nimble challenger banks such as OSB Group (LSE: OSB) and Metro Bank (LSE: MTRO) are plotting a different path forward. While they represent two very different investment theses, both offer compelling reasons to consider them as part of a diversified, income-focused portfolio in 2026.

Why challenger banks?

Here’s the uncomfortable truth for the Big Four: when interest rates fall, their profit factories slow. These heavyweight lenders depend on wide margins — the spread between what they pay savers and what they charge borrowers. Lower rates squeeze those margins, which is why FTSE 100 banks are justifiably nervous about the Bank of England’s expected rate cuts in 2026.

Challenger banks however, operate a different playbook. In most cases, they’ve built lean, technology-driven operations with lower cost bases and strategic niche focus. They don’t compete on the same terms as the Big Four. More importantly, they’ve already navigated the turbulent waters of earlier near-collapses or restructuring, pricing in risk and making it more manageable.

For example, Metro Bank’s 2023 crisis was brutal, with 1,500 job cuts, branch closures, and underperforming loan book sales. It was a painful restructuring but resulted in a lean, focused, and strategically-positioned bank operating high-margin lending segments like corporate, commercial, and SME banking.

Meanwhile, OSB’s maintained steady profitability with a razor-sharp 40% cost-to-income ratio, demonstrating operational discipline even as margins compress.

Two opportunties, two angles

OSB Group’s the immediate income solution here, with a 5.4% dividend yield — far higher than the FTSE 100’s average. The bank raised full-year profit guidance to at least £300m for 2026, signaling management confidence amid economic uncertainty. Wth a price-to-earnings (P/E) ratio of just 4.9, it’s trading at a significant discount to the market, suggesting growth potential if execution continues.

Still, it’s not immune to economic policy changes. In H1 2025, the bank’s earnings declined 20% year-on-year due to lower net interest income. It must meet its guidance targets or risk shaking investor confidence.

Metro Bank’s the more speculative play, but arguably the more exciting one. The bank returned to profitability in 2024 and is targeting double-digit returns in 2026, and mid-to-upper-teens thereafter. Its net interest margin’s expected to expand from 3% to nearly 4% this year, driven by disciplined asset rotation toward higher-yielding corporate and SME lending. If the bank executes this move successfully, it could be the turnaround story of 2026.

But its goals are ambitious and on the background of 2023’s near-collapse, it can’t afford to slip up. Everything hinges on it delivering on estimates, or the next collapse could be permenant.

Final thoughts

While both these challenger banks could face some margin pressure from falling rates, their strategic positioning and operational improvements make them worth considering. In many ways, they have advantages (and buffers) that the Big Four simply can’t compete with.

For retirement-focused investors seeking diversification beyond the big players, FTSE 250 challenger banks offer a compelling alternative to think about. Whether seeking growth opportunities or steady income, the mid-cap index offers a wide variety of options.

The post Why I’m bullish on FTSE 250 challenger banks in 2026 appeared first on The Motley Fool UK.

Interested to know what bank stock I’m talking about? Read on and I’ll tell you…

A unique British bank

The one I’m referring to is Metro Bank Holdings (LSE: MTRO). It’s a £785m market cap challenger bank that offers retail, private, business, and commercial banking services and currently has around 75 branches across the UK.

Founded in 2010, it does things a little differently to a lot of other banks. For example, its branches are typically open on Saturdays until 4pm.

Problems in the past

Now, it’s fair to say that this one is riskier than a lot of other bank stocks. Because the company has had quite a few issues in the past (accounting errors, balance sheet problems, etc) and we can’t rule out more problems in the future.

However, profits have risen recently due to cost control measures and a renewed focus on corporate and commercial lending. For the first half of 2025, for example, underlying profit before tax was £45m – more than triple the profit figure posted for the second half of 2024.

And as a result of this improvement in profitability, The City is becoming more bullish on the stock. For example, analysts at RBC Capital recently upgraded it to Outperform (Buy) and slapped a £1.55 price target on it.

That price target is roughly 33% above the current share price. For reference, RBC’s price targets for Lloyds (95p) and Barclays (£4.35) are only 13% and 14% above their current share prices.

Rising earnings and a low valuation

Of course, analysts’ price targets should never be relied upon. Often, they don’t come to fruition.

However, I do think this stock looks quite interesting right now. Next year, earnings per share (EPS) are expected to more than double to 15.5p. If that EPS forecast is accurate, we’re looking at a forward price-to-earnings (P/E) ratio of just 7.6. That seems low given the level of earnings growth.

It’s worth noting that in recent months, there’s been talk of a takeover here. Nothing has come of it yet, but the rumours suggest that the company could have more potential than the share price and valuation are implying.

So, it could be worth a closer look as an investment.

Better opportunities in the market?

That said, taking a three-to-five year view, there are other financial stocks that I’m more bullish on right now. In this sector, I like companies that are really scalable…

The post This FTSE bank stock could crush Lloyds and Barclays shares over the next 12 months, if City analysts are right appeared first on The Motley Fool UK.

However, this is just a rumour. The City is full of speculation that often turns out to be just that. Nothing’s certain until either party makes a formal announcement to the stock market.

In my opinion, it’s never a good idea to buy a stock on the basis of gossip. If talk of a bid proves to be unfounded, the share price could fall as quickly as it rises.

However, could there be other reasons to buy Metro Bank shares?

A strong recovery

Often a takeover approach results from a share price that appears to be stuck in the doldrums and that — according to the buyer — doesn’t reflect the true worth of the business.

At 31 December 2024, Metro Bank had a book value of £1.18bn. Today, its market cap is £864m. On this basis, the stock could offer good value. And this is despite a strong recent share price rally. Since June 2024, it’s risen over 250%, making it the best performer on the FTSE 250.

But look back five years and it’s only increased by 10%.

Difficult times

This reflects a poor run from spring 2023 to summer 2024 when the bank lost over 70% of its value. This was a period when it faced an uncertain future and culminated, in October 2023, with an announcement that it had raised £325m of new money and refinanced £600m of debt. Undoubtedly, this dented investor confidence.

Around this time, the bank decided to “strategically reposition its balance sheet towards higher yielding corporate, commercial and SME lending and specialist mortgages”.

As part of its new focus, in July 2024, it sold some of its residential mortgages to NatWest Group. And in February, it offloaded £584m of personal loans.

This restructuring has led to various additional costs being incurred and removing these gives a 2024 underlying loss before tax of £14m. However, the bank said it was profitable during the second half of the year.

A different approach?

As part of its marketing strategy, it places great emphasis on relationship banking. Many of its stores (it doesn’t call them branches) are open on Saturdays and it offers 24/7 phone support. This approach must be working because it now has 3m customer accounts.

But I’m not convinced it’s going to grow as hoped. Its commercial loan rate appears to be more expensive than most and I wonder if it will come to regret its emphasis on having a high street presence. The current trend is for banks to reduce the size of their expensive branch networks and move everything online.

Metro Bank’s net interest margin is also smaller than some of its larger rivals. This reflects its lower ratio of loans to deposits, which stood at 61% at March 2025. For comparison, Lloyds Banking Group’s was 96%.

A smaller margin gives it less room to manoeuvre should something go wrong. And it could be squeezed further if the base rate continues to fall.

Despite the rumoured interest of a possible bidder, I don’t want to buy shares in Metro Bank. I think there are better opportunities in the banking sector and elsewhere.

The post The Metro Bank share price soars 14% on takeover rumours! appeared first on The Motley Fool UK.

Leading the charge

I’m going to assume that instead of putting all eggs in one basket, an investor might have split £5,000 between five different banks. This would enable the overall risk to be lowered in case one underperformed. For example, they could have picked Barclays, HSBC, Lloyds, NatWest, and Metro Bank (LSE:MTRO).

If £1,000 was put in at the start of December 2021 in each bank, the blended percentage return from all five would give the total current value. Interestingly, the best performer was NatWest Group, gaining 123% over this period. The worst performer was Metro Bank, up just 15%. Overall, the return for the banking portfolio was 74.7%. So the £5,000 would currently be worth £8,735.

That’s impressive, especially when I consider that the FTSE 100 overall is up 21% over the same period.

The benefit of high interest rates

To some extent, the belief that interest rates would rise sharply would mean that buying banking stocks was a smart move. All the banks in the portfolio make money primarily via the net interest margin. This refers to the difference between the rate charged on loans and the rate paid out on deposits. When the base rate is near zero, there isn’t much margin to be made (unless you have negative deposit rates!). When the base rate rises, so does net interest income.

Metro Bank benefited from this. According to its 2022 full-year results, the net interest margin rose from 1.23% in 2021 to 1.91% in 2022. Net interest income increased to £475.6m in 2022 (up from £353.2m in 2021). Metro Bank had a sticky deposit base due to its branch-heavy model, allowing it to benefit more than fintech firms. In 2022, total deposits were £16bn, helping support its loan growth and interest earnings.

The share price is up 221% in the last year, although this is slightly misleading as the share price was falling in late 2023 and early 2024 due to it having to implement a £925m refinancing package. This was related to issues in meeting regulatory capital requirements and wasn’t a good look for the bank.

Looking ahead

Even though the banks have done very well, I’m not massively optimistic looking forward. Interest rates are now falling, and should continue to do so. Even though the banks can still remain profitable through other income streams, I don’t see the same kind of gains as likely for the next few years. Therefore, I’ll be looking to other sectors (such as AI) as growth areas for the future.

The post £5k invested in FTSE banks before interest rates started to rise is now worth… appeared first on The Motley Fool UK.

And the winner is…

I’m talking about Metro Bank (LSE:MTRO). The FTSE 250 constituent would have been the best place in the index to have invested over the space of the past year. The share price is up 152% over this period, beating the 121% move higher from CMC Markets into second place. That means that a £5k investment would currently be worth £12.6k! That’s pretty exceptional.

However, if anyone had made this pick last January, they would have needed Foolish thinking and lots of conviction to hold for the long term. This is because for the first half of last year, the trade would have been losing money. It wasn’t until July that the share price really started to jump. It’s a great example of being patient and understanding that if someone has a belief that a company could do well, being proven right isn’t an overnight thing.

The performance of Metro Bank also shines versus the broader FTSE 250. Over the same time period, the index is up 8.7%. Although not always the case, an investor who’s researched their own ideas can often find a higher rate of return than simply being passive and putting money in a tracker fund instead. Granted, this can sometimes work the other way, with a stock losing more in value than the index.

Reasons for the move

The major spark that helped to kick off the rally in Metro Bank last summer was the selling of a £2.5bn portfolio of prime UK residential mortgages to NatWest Group. This was a strategic move, which was designed to enhance the bank’s balance sheet and focus on other areas of the business that could be more profitable.

From this point, financial results started to improve. The bank had reported a pre-tax loss of £33.5m for the first half of 2024. Yet in a trading update in November, the CEO commented that “the bank returned to profitability in October, in line with guidance, and thanks to our continued emphasis
on cost discipline and balance sheet management.”

This flip to being profitable, along with a positive outlook, was another factor that helped the stock to keep marching higher.

Action from here

An investor who didn’t buy last year might wonder if there’s any point considering to add the stock to a portfolio now. It’s true that the large jump in the past year could now result in some short-term moves lower as others take some profit. However, with a price-to-earnings ratio of 6.98, it’s still below the fair value benchmark ratio of 10 that some use so could be worth doing further research.

The post £5k invested in the top FTSE 250 stock this time last year is now worth… appeared first on The Motley Fool UK.

Here’s one example from the FTSE 250 I’ve noted down that I feel has flown slightly under the radar.

How we got here

I’m referring to Metro Bank (LSE:MTRO). The share price has rocketed 143% over the past year. Gains in the share price have primarily come thanks to a reversal of fortunes for the once-struggling bank.

Back in 2019, the company was hit with an accounting scandal, which saw the stock plummet in value. Even though it started a transformation plan in 2020, progress was slow. Last year, the share price fell further as it tried to restructure debt and raise capital to keep operations going.

Part of the process was cutting staff, with news last November of a 20% reduction in the workforce. Even as we came into 2024, news of the CFO stepping down with immediate effect in January didn’t help.

As a result, earlier this year the share price hit the lowest level since the IPO in 2016. At that point, an investor would have needed to be very brave and be happy with taking on a high-risk value play to justify buying!

A change of fortune

The risk would have paid off in a big way, given the explosion higher in the stock since Q1. The catalyst that sparked the rally was the release of the 2024 annual results. The bank posted a statutory profit before tax of £30.5m, the first time since 2018 it flipped to being profitable.

This was driven by continued cost reduction, even during a period of inflationary pressure. It benefitted from higher interest rates, with the deposit base increasing. As it can make a larger net interest margin on the deposits held, it was a key factor in pushing the company to a profit.

A few months back it confirmed the sale of the residential mortgage book to NatWest for £2.4bn. This will provide a great boost to the balance sheet. It’ll also allow the bank to redeploy this cash to more profitable divisions, hopefully fuelling further growth for 2025.

The positive momentum has kept rolling, with the stock seemingly hitting fresh 52-week highs on a regular basis.

The bottom line

I think investors should consider adding this growth stock to their portfolio as I don’t feel the share price rally’s done yet. The price-to-earnings (P/E) ratio’s only 7.22, below the fair value benchmark of 10 that I use. Further, the stock’s only at levels last seen in September 2023. So it’s not like this is an overvalued company right now.

I do accept that a risk is the competitive landscape. Metro’s a relatively new player in the market and it’ll struggle to keep taking market share away from legacy players like Lloyds Banking Group. However, this isn’t impossible.

The post Up 100%+ in a year, here’s an unsung growth stock for investors to consider appeared first on The Motley Fool UK.

Grabbing low-priced stocks primed for recovery is a great way to lock in some potential profits down the line. These two undervalued gems have just released impressive results — and could be on the up!

Metro Bank 

Metro Bank (LSE: MTRO) shares soared 37% last Wednesday after it posted positive first-half results. The bank says it expects to return to profitability later this year due to cost savings initiatives. These include the recent sale of its residential mortgage portfolio.

“We expect these actions to positively impact on our balance sheet in the fourth quarter of the current financial year, delivering a return to profitability“, said CEO Dan Frumkin.

Despite the good news, the bank reported a pre-tax loss of £33.5m, compared with a £15.4m profit in H1 2023. Before the announcement, the share price had fallen 66% over the previous 12 months. Volatile trading forced it to seek a £925m rescue plan last October. Subsequently, 500m new shares were issued, diluting shareholders substantially. 

So it may need to work hard to attract new investors. 

However, it has since gone on a saving spree aimed at cutting costs, which seems to be working. Operating expenses are down 6% compared to the full year and the bank is reportedly on track to achieve its goal of £80m in savings.

IG Group Holdings

IG Group (LSE: IGG) released its FY 2024 results last month, prompting an 11% price jump. Soon after, both Shore Capital and Barclays put in positive ratings for the stock. Deutsche Bank had already put in a buy rating for the stock before the release.

The London-based company operates one of the UK’s largest derivatives trading platforms. It’s a top 10 FTSE 250 constituent with a market cap of £3.5bn. Stiff competition comes from similar trading platforms like Plus500, CMC Markets, and AvaTrade. 

Key points in the results were a 32% rise in year-on-year profit and a 9% increase in revenue in the second half. The last half of 2023 was slow for the business but this year has proven more successful. The shares are up 36% over 12 months, with most gains made this year.

Along with the results, IG announced a £150 share buyback programme and proposed a dividend per share increase to 46.2p (previously 45.2p). The yield is currently an attractive 4.9%, with a sufficient payout ratio of 58%.

But IG’s recent success is riding on a strong economy — and one that looks increasingly shaky. Mobile apps have made trading and investing more accessible of late. But an economic slump could result in mass withdrawals, hurting IG’s share price.

Despite the price growth, the shares remain undervalued by 54% based on future cash flow estimates. And a low price-to-earnings (P/E) ratio of 11.2 gives them much room to grow.

The post 2 undervalued gems worth considering for a Stocks and Shares ISA in August appeared first on The Motley Fool UK.

The FTSE 100 did well in July, climbing 2.5%. But that’s not much compared to the NatWest (LSE:NWG) share price, which jumped 17% during the month. 

The performance was driven by a few things, some of which also helped other bank shares. The biggest catalyst, though, was a strong earnings report from the company itself. 

Earnings

There were two big highlights to NatWest’s earnings report. The first was an expansion in lending margins – a crucial measure of the bank’s profitability. 

Net interest margins went from 2.05% during the first quarter of the year to 2.1% in the second. That’s positive, but Lloyds Banking Group managed 2.93% margins during the same period.

There is, however, an important difference between the two. While NatWest’s margins widened between April and July, Lloyds saw its margins contracted – they were 2.95% in the first quarter.

In other words, NatWest is moving in the right direction where Lloyds isn’t. And that’s why the stock performed better than its rival in July. 

Growth

The good news for investors wasn’t limited to stronger margins. The company also managed to grow its loan book during the period, with the acquisition of £2.5bn in mortgages from Metro Bank. 

These are prime mortgages with an average loan-to value of 62%, which is higher than NatWest’s current average. This should mean the risk of the bank losing money is relatively low.

Over time, the interest on these should result in higher earnings. But I think the news is more significant than just future profitability.

Since 2008, NatWest has had a reputation for being a bank that needs support. The company making acquisitions, though, is one of the clearest signs that things have changed. 

Sale: canceled

The other major news for NatWest shareholders is that the UK government’s proposed sale of its stake in the bank has been canceled. That’s the result of the general election outcome.

I don’t view the government owning a significant stake in the bank as a good thing for shareholders. But I also don’t think a public sale would have been a positive thing.

Any sale would either have to take place at a price above or below the prevailing market level. But while a discount would be bad for the public, it’s hard to see why anyone would be willing to overpay.

As I see it, the best outcome is for the government to unwind its ownership of NatWest over time, returning it to private shareholders. And that seems to be the path going forward.

Should I buy NatWest shares?

NatWest has been one of the best FTSE 100 stocks of the last year. Part of this has been a helpful interest rate environment, but the company has clearly made some improvements of its own.

From my perspective, I still think Lloyds is the stock I’d buy if I were looking to invest in a UK bank today. But I wouldn’t bet against NatWest in future.

The post Why the NatWest share price climbed 17% in July appeared first on The Motley Fool UK.

After all, we’ve seen so many go on from a result like this to the full 100% fall. Do I think that’s a possibility for Metro Bank? Oh yes.

So why am I thinking of putting a small amout of cash into the stock? Let me explain.

Super low valuation

The first measure most of us reach for when we want to find good value stocks is the price-to-earnings (P/E) ratio.

Now, that can hide all sorts of shocks. But in general, lower is better.

It’s why I rate Barclays, on a P/E of only five, as one of the best bank stocks to consider buying now. That’s about a third of the FTSE 100‘s long-term averge, so I see a big safety margin there.

But a low P/E can also signal risk and uncertainty, both of which cloud the bank sector right now.

Bust, or multibagger?

When we look at the forecast P/E for Metro Bank, it’s about 4.5, so a bit less than Barclays.

But forecasts show rising earnings in the next two years, dropping the P/E to under two by 2025! To me, what that says is the brokers see a high chance of the company going bust.

But if it doesn’t, and if we see anything like a sustainable recovery, might the share price take off and reward investors with a multibagger winner?

Now, Metro Bank has been through a sea of troubles, and has needed some serious refinancing to keep it afloat.

Light ahead?

The most recent news tells us that CFO James Hopkinson is the latest to leave the sinking (or maybe refloating) ship.

But we found out something in December that I think is cause for cautious optimism. At one stage, it looked like Metro Bank might have to sell off its residential mortgage book to survive.

But we’ve since heard that the firm’s “recent capital package and cost reduction plan … has renewed balance sheet strength.“

The board went on to say it had “considered a potential sale of up to £3bn of residential mortgages and concluded that, given the prevailing market environment, it is in the best interests of shareholders to retain the existing loan portfolio.“

Too risky?

Is this too risky an investment to consider? If I didn’t have a diversified portfolio, I’d say so. And I also wouldn’t put a lot of money on it.

I’ve always held a variety of stocks, to help with the risk from any individual sector. Right now though, I’m a bit heavy in finance, and that makes me pause.

So my key focus in 2024 will be on more dull, boring FTSE 100 cash cows. But with a small amount of my cash, no more than I can afford to lose, I might just go for a bit of Metro Bank excitement.

The post Could Metro Bank be the best value stock to buy right now? appeared first on The Motley Fool UK.