I’m considering buying some shares for my holdings and I find myself wondering whether the Lloyds (LSE: LLOY) share price could double, and if so, how and when? Let’s dig deeper.
Struggling shares and current valuation
As I write, Lloyds shares trade for 42p. Over a 12-month period, they’re down 6% from 45p to current levels. Macroeconomic volatility continues to supress the Lloyds share price as it has dropped 20% from 53p in February to current levels.
For Lloyds shares to double, they’d have to reach levels not seen since 2015. I’d argue they’ve never really recovered from the financial crash of 2008.
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I reckon it’s important to understand the value of Lloyds shares right now from an investment viability perspective. The price-to-earnings ratio of four at the moment suggests they’re cheap. This valuation is one of the reasons I’ve been drawn towards them recently.
Another is the price-to-book ratio. At present, this sits close to 0.6. A reading of below one can indicate a stock is undervalued.
What could prompt the Lloyds share price to surge?
Let’s dissect some potential reasons.
- Higher interest rates — like the ones we’re experiencing at present — are a double-edged sword for banks, if you ask me. Increased rates can boost the coffers through boosted income. However, when rates continue to rise, the potential for defaults increases too, which is bad news for performance and sentiment. Updates from the government that inflation is now heading downwards suggests interest rates could follow. If this happens, the shares could gain some momentum and begin an ascent.
- Linked to this, when rates fall, firms like Lloyds can start reallocating debt and cash to shares. This is good news for a stock price as it tends to head upwards.
- Despite the government’s autumn statement yesterday — with some believing we may be nearing the end of volatility — we aren’t out of the woods yet, in my opinion. If the economy were to fall into a recession and unemployment were to rise and sustained higher interest rates persist, the Lloyds share price could struggle. However, there aren’t any forecasts for this to happen. Of course, I do understand forecasts don’t always come to fruition.
Investment viability and my verdict
As the largest mortgage provider in the UK, Lloyds can certainly benefit in the longer term from this dominant market position. However, at present, economic turbulence has caused the housing market issues. I reckon this is one of the reasons Lloyds shares have struggled.
Lloyds passive income opportunity looks enticing with a dividend yield of close to 6%. However, dividends are never guaranteed and the business has had a bit of a mixed record of payouts since the crash in 2008. Since the pandemic, dividends have remained steady and I reckon it’s a decent passive income stock, in my eyes.
Lloyds passive income opportunity and valuation make it appear a good opportunity for me to boost my holdings.
I don’t think we’ll see the Lloyds share price double any time soon. External factors out of its control will hold it back, in my opinion. However, once volatility cools, I reckon the shares will begin to climb.
