As I write, the price of Lloyds (LSE: LLOY) shares sits at 47.2p. I think that could be one of the best bargains on the FTSE 100.
I already own shares in the Black Horse Bank. It makes up around 10% of my portfolio. But should it be more?
I certainly feel there’s a case to be made. Especially at its current price.
Not all plain sailing
Last year saw shares in Lloyds rise around 5%. But it’s not been a smooth journey in recent times. Five years ago, I would have shelled out 54.7p for a share. A few months prior to the pandemic wiping billions off its value, I would have paid 64.3p.
Today’s price signifies a 26.7% decline since then. But in true Foolish fashion, I think there could be a positive from all of this. The stock hasn’t been the most rewarding to shareholders of late. But isn’t that the best time to buy, right?
Value to be had
Well, I’d say so. And I see plenty of reasons to suggest Lloyds shares could go on a charge.
I see this when looking at the stock’s fundamentals. Lloyds trades on a price-to-earnings (P/E) ratio of around 6.5. To me, that looks cheap. It’s below the FTSE 100 average of 11. It also clocks in lower than the global sector average of 10.
Added to that, I’m also drawn by its price-to-earnings-to-growth (PEG) ratio. This is calculated by dividing a company’s price-to-earnings (P/E) ratio by its forecast earnings per share growth rate. For Lloyds, this is 0.55. That tells me there’s value to be had.
A rocky road
All that said, I’m expecting further volatility in the upcoming 12 months or so. There are plenty of events that’ll sway the market in the next year. This includes both UK and US elections, as well as ongoing conflicts.
There’s also the issue of interest rates. Higher rates are a double-edged sword for Lloyds. On one hand, the firm has benefited from being able to charge customers more when they borrow. We’ve seen this through a spike in its net interest margin. On the other hand, higher rates will put more pressure on banks, as it often leads to more defaults on loans.
The business is also heavily reliant on the UK. Lloyds operates solely in the domestic economy, meaning any blips will impact it more than some of its competitors with international exposure.
Not put off
But that won’t deter me. In the meantime, I’ll be happy to pick up some extra income through its 5.3% dividend yield. Dividends are never guaranteed. But with its dividend covered around two times by earnings, I’m confident of a payout.
I’m also bullish on Lloyds’ long-term prospects. In February last year, it committed £3bn via a strategic investment to diversify its revenue streams. As a shareholder, these are signs I like to see.
This, coupled with its low valuation, lead me to believe Lloyds could be a steal. With the spare cash I have in the weeks ahead, I’m rushing to buy some shares.
