Any investors who have stuck with Barclays (LSE: BARC) since the financial crisis have been well rewarded for their loyalty over the past decade.
According to my figures, over the past 10 years, shares in the bank have produced a total return of 12.4% per annum since March 2009, outperforming the FTSE 100 by 1.5% annualised over the same time frame.
So, investors who were brave enough to buy the Barclays share price right at the height of the financial crisis have done well. Unfortunately, shareholders who hesitated haven’t seen the same kind of returns.
Indeed, over the past five years, the Barclays share price has underperformed the FTSE 100 by around 10% per annum including dividends. Over the past 12 months, the stock has underperformed by a staggering 24% including dividends.
With these figures in mind then, why do I think now is the time to buy the Barclays share price?
Time to buy?
There are two main reasons why I think the stock could rise substantially this year. Firstly, there’s the Brexit debate.
For the past two years, the spectre of Brexit has haunted the UK financial sector. No one knows what will happen to the City of London when the UK leaves the European Union, even if it does go with a deal. With that being the case, many investors have been avoiding the sector altogether for the past 24 months.
Removing the uncertainty will, in my opinion, lead to renewed investor interest over the next 12 months even if the outcome is unfavourable. That’s because investors and analysts alike can return to viewing the company (and the sector) based on what has happened, rather than what could happen.
The other reason why I think the Barclays share price is worth buying right now is its valuation. No matter how you look at it, the stock seems cheap.
The shares are currently changing hands for just 50% of tangible book value and a forward P/E of 7.2. I think this valuation also provides some downside protection if the UK economy collapses post-Brexit. A price-to-tangible book value of just 50% makes Barclays one of the cheapest financial stocks in the developed world, despite its strong balance sheet and robust global franchise. Investors buying today will also receive a 4.7% dividend yield.
Too cheap to pass up?
Valuation is the primary reason why I’m so optimistic on the Barclays share price. No matter what happens with Brexit. If the UK crashes out of the EU with no deal in place, the bank is already priced for disaster, and if the economy performs better than expected, there could be a big rally.
On the other hand, if the UK does manage to negotiate a last-minute transition, you have a deeply undervalued bank that doesn’t appear to deserve its discount valuation. In this scenario, it will only be a matter of time before global value hunters descend on the bank, sending its share price soaring in my opinion.
That’s why I think the Barclays share price could be worth buying right now.
