I think it’s fair to say that shares in Lloyds Banking Group (LSE: LLOY) have been one of the UK’s biggest ‘value traps’ in modern times. Essentially, the Lloyds share price has gone nowhere since the global financial crisis of 2007-09.
The share price’s long slide
As one of London’s most popular and heavily traded stocks, Lloyds shares have disappointed millions of investors over the years. For example, my wife bought shares in the Black Horse bank for our family portfolio at 43.5p each in June last year.
Back then, I saw them as a bargain with scope for substantial upside. At first, they set off in the right direction. At their 52-week high on 9 February 2023, they peaked at 54.33p.
However, as a US banking crisis started brewing in early March, down went the share price. By 24 March, the stock had dropped as low as 44.9p, before rebounding.
On Friday, it closed at 45.81p, valuing the Big Four bank at £30.2bn. Here’s how this FTSE 100 stock has performed over eight different periods:
| One week | -6.2% |
| One month | -5.4% |
| Three months | -14.4% |
| Six months | +7.2% |
| One year | +4.1% |
| Two years | -0.9% |
| Three years | +49.8% |
| Five years | -29.2% |
The price has declined over one week, one month and three months. Over one year, the stock is up over 4%, yet this is still below the FTSE 100’s 7.8% gain in 12 months. All figures exclude cash dividends.
Over three years, Lloyds stock has leapt by almost half, but share prices were crushed by Covid-19 in May 2020. Over five years, the shares have dropped almost 30%. As I said, a classic value trap.
What about the future?
For the last two years, the shares have zigzagged up and down, but have gone nowhere. There seems to be no sustained momentum to drive the shares higher. However, it’s possible that this might be set to change.
Right now, the UK economy looks weak, with the risks of a full-on recession growing. Also, UK disposable incomes are being squeezed by sky-high energy bills and soaring consumer prices. This will push up banks’ bad debts and loan losses this year.
That said, I’m optimistic that the next five years will be better for Lloyds than the previous five. After all, in the last half-decade, we’ve had the biggest global pandemic in 100 years, plus the biggest European war since 1945.
The shares look undervalued to me
If all goes well for this big bank, I could see its share price moving up to 60p, 70p and even 80p over the next two years. But I wouldn’t expect the shares to exceed £1 for at least three years — and I have to remember that it has shown promise before but turned out to be a disappointment.
Meanwhile, Lloyds stock seems too cheap to me at current levels. It trades on a lowly price-to-earnings ratio of 6.4, for an earnings yield of 15.7%. Also, its price-to-book-value ratio of under 0.65 is like buying £1 coins for 65p.
A lack of cash prevents me from buying more the shares today. But my wife and I aim to keep our existing holding for the long term. Our reward will be collecting the juicy dividend yield of 5.2% a year, covered three times by earnings!
