Is the Barclays share price the cheapest in the FTSE 100?

Barclays plc (LON: BARC) appears cheap, but is it the best buy in the FTSE 100 (INDEXFTSE: UKX) or should you look elsewhere?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Barclays (LSE: BARC) share price seems to be one of the most hated stocks on the market right now, despite its rising profitability. Management believes the bank is still on target to hit its main profitability target for 2019 — return on tangible equity of more than 9% — even though the firm had a “challenging” first half.

While many City analysts expect the lender to miss this target, Barclays is still one of the most profitable banks in Europe. It generated net earnings of £1bn in the second quarter, and analysts believe the group will earn as much as £3.7bn in profit for the full year or 21.8p per share.

If Barclays meets this target, the stock is currently trading at a forward P/E of 6.3, that’s compared to the FTSE 100 average of 12.9.

The Barclays share price isn’t just cheap on an earnings basis. The bank’s tangible book value per share sits at around 227p. So, at the time of writing, the stock is trading at a price to tangible book ratio of 0.4.

This ratio would be acceptable if the bank was losing money. But, as noted above, it’s not. On top of the bargain basement valuation, City analysts believe the Barclays share price could yield 6.2% this year, once again above the FTSE 100 average of 4.5%.

Looking at all of the above, it’s clear Barclays is one of the cheapest stocks in the FTSE 100. But is it worth buying, or is the bank a value trap?

Only getting cheaper

Shares in the financial institution have looked cheap for several years now. However, investors have continued to sell Barclays despite its impressive turnaround and low valuation.

At this point, it’s impossible to say what catalyst will stop the declines. A resolution to the Brexit saga might help, and so will higher interest rates. Or it could just be the case that investors don’t want to own banking stocks.

I feel that as long as shares in Barclays remain cheap, the stock could be an excellent value investment, although this isn’t one for the faint-hearted. There’s a good chance the stock could continue to slide from here.

Nonetheless, the fundamentals of the business are improving even though the UK economy is hamstrung with Brexit uncertainty. What’s more, management seems to be doing everything in its power to improve profitability, cut costs and drive up efficiency.

Look to the long term

So overall, rather than focusing on short term market sentiment, I think it’s sensible to focus on the long term potential of Barclays. The bank is one of the largest in the UK and is set to churn out nearly £4bn in profits this year. Sooner or later, the market will realise the opportunity on offer here, and the shares will adjust accordingly.

In the meantime, shareholders will need a sit tight and pocket that 6.2% dividend yield. With an upside of more than 100% on offer between the current stock price and tangible book value, it could be worth the wait.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »