Lloyds’ (LSE: LLOY) share price has risen significantly over the last two months. Yet at 48p, it’s still at very low levels. But could the bank’s share price double this year? Let’s discuss.
How the shares could double
For Lloyds shares to hit 96p this year, one of the following three scenarios would have to play out:
- Lloyds sees its earnings per share (EPS) forecasts double while its valuation stays the same. Note that EPS is currently forecast to come in at 7.16p for 2024 (versus a 7.68p estimate for 2023).
- The bank’s valuation doubles while EPS forecasts stay the same.
- Both EPS forecasts and the bank’s valuation rise by a decent amount, doubling the share price.
2024 earnings
Personally, I can’t see EPS forecasts increasing significantly this year or next. Indeed, I don’t think 2024 is going to be an easy year for UK banks.
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Not only are they likely to face the lagged effect of higher interest rates (mortgage defaults, corporate loan defaults, etc) but they’re also likely to face falling interest rates, which could negatively impact their net interest margins.
Of course, Lloyds’ EPS for 2024 could come in higher than expected. Share buybacks could help here. I’d be surprised if EPS was to come in meaningfully higher than the forecast though, so I think scenarios one and three are unlikely.
Low P/E ratio
As for the valuation, I do see potential for an increase from here (despite the challenging backdrop).
Currently, Lloyds has a forward-looking price-to-earnings (P/E) ratio of just 6.7. That’s quite a low earnings multiple.
However, I don’t think the valuation can double from here this year. For a start, Lloyds doesn’t really have much of a growth story at the moment. This year, the International Monetary Fund (IMF) expects UK economic growth (Lloyds is a proxy for the UK economy) to come in at just 0.6%.
Secondly, old-school banks like Lloyds are being disrupted by new digital banks such as Revolut and Monzo as well as FinTech (financial technology) companies like Wise.
It’s also worth noting that US banking giant JP Morgan – which is one of the strongest, most powerful banking organisations in the world – only has a P/E ratio of 11.
So I’d be surprised if Lloyds’ P/E ratio was to rise above nine or so in 2024.
I’ll be looking elsewhere for two-baggers
Putting this all together, I do think Lloyds shares are capable of generating solid returns this year (dividends could help boost returns). However, I can’t see the share price doubling in 2024.
The good news for UK investors though is that there are plenty of stocks capable of doubling in price in 2024, especially in the small-cap space.
If I was looking to double my money with a stock, that’s where I’d be looking right now.
