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Is the Lloyds share price cheap enough for me to buy the stock?

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·3-min read
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The going’s been tough for long-term investors in Lloyds Banking Group (LSE: LLOY). But the Lloyds share price has performed strongly following the 2020 stock market crash as hopes of a strong economic rebound have improved.

Prices of the FTSE 100 bank have risen 56% during the past 12 months. What’s more, the Lloyds share price hit new 15-month peaks on Monday before succumbing to the broad sell-off across UK share markets yesterday.

So is now the right time to buy in the belief the Lloyds share price can soar again? Or is the bank’s recent rise simply a false dawn?

Lloyds’ share price soars…

To recap, Lloyds’ share price set off like a train in November when news of successful Covid-19 vaccine trials emerged. The subsequently successful rollout of these pandemic battlers in the bank’s UK marketplace has boosted hopes of a sharp profits rebound at the bank too, pulling its share price higher in the process.

A slew of positive trading updates from fellow FTSE 100 banks have also fed hopes of a strong industry recovery. Lloyds reported profits of £1.9bn in the first three months of 2021, a result which blasted past broker expectations. And the firm also hiked its 2021 return on tangible equity expectations. The company’s estimate now sits at 8-10%, up from the 5-7% it had targeted in February.

The Bank of England’s decision to upgrade its growth forecasts has boosted the Lloyds share price as well. Last week, Threadneedle Street upped its GDP estimates for 2021 to show growth of 7.25%, up from the prior prediction of 5%. For many, the chances of a strong profits bounceback at the bank — and the possible return of dividend payments — continue to grow and grow.

…but can it keep rising?

It’s quite possible the Lloyds share price could keep soaring in 2021, perhaps even beyond. But, as a long-term investor, I’m not interested in buying the FTSE 100 bank for my Stocks and Shares ISA.

This isn’t just because the jury’s still out on whether the UK economic rebound can roll on. Government furlough schemes are set to conclude later this year, a scenario that could cause unemployment to spike and choke off the recovery. There’s also evidence the expected sustained surge in consumer spending might not transpire, given the still-uncertain economic outlook.

I’m also not expecting the Bank of England to lift interest rates significantly any time soon in another threat to bank’s profits. Policymakers has largely been supportive of maintaining loose monetary policy, at least in public.

Low interest rates are a major reason why the Lloyds share price struggled during the latter half of the 2010s. And I expect them to remain around recent record lows for a long time. With competitive pressures from the challenger banks also rising, I reckon the long-term outlook for the Lloyds share price remains pretty downbeat.

The post Is the Lloyds share price cheap enough for me to buy the stock? appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. 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 2021