It’s been a disappointing start to 2024 for the Lloyds (LSE: LLOY) share price. After entering the year sitting at 48p, today it’s 12% lower, or 42.1p. In the last week, it’s down 10%.
To be honest, it’s been an underwhelming few years for the stock. The last five years have seen it lose 27.4% of its value. At times during those five years, I would have forked out over 64p for a share.
But I’m not writing it off because of its poor performance. I’m not fussed about what’s been and gone. I’m more worried about whether its share price will take off in the next five years. I’ve slowly been adding to my position in the stock in recent times. Could the latest dip be another chance to snap up some shares?
Why the fall?
Before we explore that, let’s delve into what’s behind the share price decline. Well, the reason is the recent news that the firm could face a fine of up to £1bn from the Financial Conduct Authority (FCA). This follows an investigation into practices surrounding motor loan commissions.
Granted, there’s never a good time to receive a £1bn fine. However, Lloyds is coming off the back of a strong year for profitability. So, it should have cash on hand to offset a chunk of any potential fine.
What’s also important to consider is that this is speculation. Lloyds may not be fined. Or it may be that the bank isn’t as heavily exposed as once thought. Right now, we just don’t know.
Time to buy?
So, is this just the market overreacting? Well, I think it could be.
I thought Lloyds stock was a bargain before. Now, I plan to rush and buy more shares. With its decline, it now looks cheap. It trades on a price-to-earnings (P/E) ratio of 7.5. That’s below the FTSE 100 average.
On top of that, I also see value when looking at its price-to-earnings-to-growth (PEG) ratio. This is calculated by dividing a company’s P/E ratio by its forecast earnings per share growth rate. A PEG ratio of 1 suggests a company’s stock is fairly valued. Lloyds’ PEG ratio is 0.55. That signals its shares may be undervalued by nearly half.
Hold your horses
So, I think now is a smart time to swoop in. But that doesn’t mean I don’t expect further issues with Lloyds. Any further news relating to the investigation by the FCA could send the stock falling further.
On top of that, interest rates will also dictate its performance this year. Higher rates have provided Lloyds’ net interest margin with a boost. In 2023 it managed a 3% margin, the highest in a decade. However, with rates set to fall this year as inflation continues to drop, this will adversely impact its margins. This could see its share price stagnate in 2024.
I’m still buying
Nevertheless, I’m happy to pick up some passive income via its 6% dividend yield while I wait for its share price to rise. And while dividend payments are never guaranteed, the Lloyds dividend is covered 2.2 times by earnings, so I’m confident of receiving a payout. At their current price, I’m rushing to buy Lloyds shares.
