I reckon Barclays (LSE: BARC) shares could be one of the best buys on the FTSE 100. The stock’s been a standout performer on the UK-leading index, rising 42.6% year to date. But at 221.4p as I write, I think its share price has got a lot more to give.
Here’s why investors should consider snapping up some shares today.
Valuation
I want to assess just how cheap the Blue Eagle Bank is by looking at fundamental valuation metrics. The first one is the price-to-book (P/B) ratio.
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As seen below, Barclays currently has a P/B ratio of 0.57. Considering 1 is deemed fair value, that highlights how undervalued Barclays shares could be right now.
Furthermore, as seen below, it’s the second cheapest bank on the index measured by the P/B ratio. Only Standard Chartered trumps it, ever so slightly, with a P/B of 0.55.
Created with TradingView
Then there’s its price-to-earnings (P/E) ratio. This currently stands at 8.6. Its forward P/E is 6.9. That’s below the index average of 11 by some margin. Again, that signals Barclays shares look like cracking value.
Shareholder returns
There’s one downside to a rising share price, namely a lower dividend yield. As the chart shows, this has been falling in recent times.
Created with TradingView
Still, at 3.6%, that’s in line with the Footsie average. Its current payout is covered three times by earnings, which is a lot higher than the benchmark of two. What’s more, we should see it grow.
That’s because the bank has laid out plans to increase shareholder returns over the coming years. It aims to return £10bn to investors by 2026 through dividends and share buybacks. As such, its forecast dividend yield for 2024 is 3.9%. That rises to 4.3% in 2025 and 4.7% in 2026.
The business is also streamlining. Moving forward, it’ll operate under five distinct business divisions to become more efficient and accountable. Some of the £2bn it plans to save from making this move could be redistributed to shareholders.
Target price
I can’t say what will happen with the Barclays share price in the coming months. That’s unknown. Economic uncertainty continues to rumble on and this is a threat to the bank. When interest rates fall, this will also be detrimental to its operations as it will squeeze its margins.
Analysts have an average 12-month price target of 259.7p. That’s a 17.9% premium from its current price. While of course, there’s no guarantee it could rise that high, I think it shows the growth potential the Footsie bank has.
Keen to buy more
I sensed a market opportunity last August when the stock was at 149.2p and I bought some shares. I added to my position again in October when its price fell to 133.2p. Today, I’m sitting on a 55.1% paper gain.
But even after that rise, I’m still very keen to increase my holdings. And with any cash I have in the coming weeks, that’s what I’ll be doing. It’s a stock that looks cheap, with the potential for growing income and it’s a business that’s putting an emphasis on streamlining. I like the sound of that.
All in all, I think Barclays could be one of the shrewdest buys on the FTSE 100 right now.
