Despite trading on an exceptionally low valuation, shares in Lloyds (LSE: LLOY) continue to fall. In fact, they’re down by 7% since the turn of the year, which compares poorly to the FTSE 100’s decline of 2% over the same time period. However, this means that Lloyds now offers excellent value for money, with the part-nationalised bank’s shares trading on a price-to-earnings (P/E) ratio of just 8.8.
This indicates that Lloyds could be due an upward rerating and with the bank having a sound strategy that has improved its efficiency, it seems to be well-placed to deliver a rising share price over the medium-to-long term. That’s especially the case since Lloyds is likely to benefit from an improving UK and global economic outlook that could have a positive effect on its financial performance. And with Lloyds also forecast to increase dividends per share by 21% next year to give a forward yield of 7.6%, its current share price appears to be rather low.
What’s the alternative?
Of course, there are a number of other options within the banking space that may be of interest to investors. After all, Lloyds is forecast to increase its bottom line by just 2% next year, which could fail to sufficiently catalyse investor sentiment in the near term. As such, the likes of Aldermore (LSE: ALD) and OneSavings Bank (LSE: OSB) may be tempting for a number of investors.
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A key reason for that is their earnings growth potential. In the case of Aldermore, it’s expected to increase its bottom line by 17% in each of the next two years. This puts it on a price-to-earnings-growth (PEG) ratio of just 0.4, which indicates that its shares could move significantly higher. Similarly, OneSavings Bank is forecast to deliver a rise in its bottom line of 9% this year and a further 12% next year. When this rate of growth is combined with its lowly rating, it equates to a PEG ratio of only 0.6, which is again highly appealing.
Although Aldermore and OneSavings Bank can’t match Lloyds when it comes to dividend yield, in the long run they look set to become impressive income stocks. OneSavings Bank is due to yield 3.6% next year from a dividend set to be covered 3.8 times by profit. Meanwhile, Aldermore is expected to commence dividends next year and although it’s due to yield just 1.8%, a payout ratio of just 12% shows that dividends could rise at a rapid rate.
As such, both OneSavings Bank and Aldermore appear to offer a potent mix of income, growth and value potential. While Lloyds is unable to match them on the growth aspect at the present time, its larger size and greater diversity appears to adequately make up for this. Therefore, even though Aldermore and OneSavings Bank appear to be well-worth buying, Lloyds seems to have sufficient potential rewards on offer, plus lower risks, to give a more enticing risk/reward ratio for long-term investors.
