The Barclays (LSE: BARC) share price has gone nowhere over the past decade.
According to my figures, the stock has produced a total return of just 1.1% per annum since the beginning of the second quarter of 2009. During this period, the FTSE 100 has produced an average annual total return for investors of 10.4%. On that basis, the Barclays share price has underperformed the FTSE 100 by 9.3% per annum in the past decade.
Over the past 12 months, the performance of the stock is even more depressing. Even after including dividends paid to investors, it has lost 18.7% since April last year, underperforming the FTSE 100 by 21.7%.
The good news is, in recent months, investors have started to return to the stock.
Over the past three months, shares in the bank have added 6.2% although that pales in comparison to the FTSE 100’s 10.4% total return. Still, this positive performance seems to suggest that investors believe the worst could now be behind the company, and its outlook is improving.
So, the question has to be, is now the time for me to buy the Barclays share price or is it wise to stay away?
Barclays has been in the headlines a lot recently because the company is being targeted by activist investor Edward Bramson who, thanks to a significant loan from Bank of America, has built a 5.5% stake in the enterprise, making him the group’s third-largest shareholder.
Bramson is trying to drum up shareholder support for his election to the board at the bank’s annual meeting on May 2. The activist is pushing for Barclays to wind down its struggling investment bank and trading operations, which consume a lot of capital but in recent years have struggled to eke out a profit.
By closing down the investment bank Bramson argues, Barclays will free up money that can either be returned to investors or used to grow the profitable retail side of the business.
It is not clear if Bramson will succeed in his drive to get on the board at Barclays and change the direction of the group, but his actions have sparked hope among analysts and investors that the bank’s management will take his concerns seriously.
80% upside on offer
In recent years, its primary UK peers Lloyds and RBS have both reported rising profits and rewarded shareholders with special dividends. By comparison, Barclays is still struggling, and this shows in the valuation of the stock. It is currently dealing at only 50% of book value, making it one of the cheapest large banks in the European banking sector.
Unfortunately, it is difficult to say what the future holds for the company, but this low valuation does lead me to conclude that investors buying today might be well rewarded if management does decide to rebase the business away from its struggling investment bank, towards the more profitable retail operations.
For example, the rest of the UK banking sector is trading at a median price-to-book ratio of 0.9, implying an upside of around 80% for the shares when Barclays finally gets its act together. On top of this, the stock supports a 4.7% dividend yield, meaning investors will be paid to wait for the recovery, but bear in mind that it could be a long wait.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays. The Motley Fool UK has recommended Lloyds Banking Group. 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.
Motley Fool UK 2019