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Are Lloyds shares simply too cheap to ignore?

View of Tower Bridge in Autumn
Image source: Getty Images

I have some investable cash left over from February and I’m not sure where to put it. At 47.2p, are Lloyds (LSE: LLOY) shares just too cheap for me to pass on?

I get it. They’ve underperformed massively in the last five years. During that time, they’re down 23.7%. In the last year, they’ve fallen 8%. In 2024 1.8% has been shaved off the stock’s price at the time of writing.

That doesn’t make great reading, especially for Lloyds shareholders like myself. But let’s take a step back.

Changing its fortunes?

So, the Black Horse Bank has posted a sub-par performance. But just like previous gains provide zero indication that a stock will continue to surge, past losses do not mean a stock cannot turn around its performance.

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In fact, at their current price, there’s lots to like about Lloyds shares. It looks like they could be among the biggest bargains on the FTSE 100.

A cheap buy

One reason for that is its cheap valuation. As I write, the stock trades on a price-to-earnings (P/E) ratio of just six. That’s below the Footsie average of around 11.

On top of that, its price-to-earnings-to-growth ratio, which is calculated by dividing a company’s P/E ratio by its expected EPS (earnings per share), is around 0.7. With 1 indicating a stock is fairly priced, that shows investors could be undervaluing Lloyds.

Alongside its low valuation, the stock also sports an impressive 5.9% dividend yield. Again, that beats the average of its FTSE 100 peers (3.9%). Its shares are forecasted to yield 6.7% in 2024 and 7.3% in 2025. From an income perspective, Lloyds certainly seems like a winner.

Interest rates

But there are other factors that I mustn’t forget about. Take interest rates as an example.

They’re a double-edged sword for businesses like Lloyds. On the one hand, higher interest rates provide a boost. They allow the firm to charge customers more when they borrow. We saw this in action in 2023 when Lloyds’ net interest margin jumped 3.11%. As a result, it posted a 5% rise in its net interest income for the year to £13.8bn.

However, higher rates also cause uncertainty. Impairment charges can rise as some customers default on their payments. They also have a detrimental impact on the property market, which Lloyds has large exposure to as the UK’s biggest mortgage lender.

Could it be?

But could it be that Lloyds is one of the best bargains out there right now? Would I be silly to turn down the opportunity to snap up more shares at such a cheap price?

Well, that’s a matter of opinion. But I’d say so. I’m confident that the bank can turn its fortunes around going forward. And I think in the latter stages of this year, and the years ahead, we’ll see the Lloyds share price kick on.

With that, I think it’s time I bought some more shares.

The post Are Lloyds shares simply too cheap to ignore? appeared first on The Motley Fool UK.

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Charlie Keough has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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 2024