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After rising 29%, is there still any value in the Lloyds share price for investors?

Image source: Getty Images
Image source: Getty Images

In the last six months, the Lloyds (LSE: LLOY) share price has risen 29.1%. Previously, it seemed like FTSE 100 banks had been held back by negative sentiment more than anything. But that looks like it’s changing.

But have investors who are considering buying shares today missed out? I want to explore if there’s any value left to squeeze out of the Lloyds share price.

More to give

I think the Lloyds share price still has more room for growth. There’s one reason why I say that.

Quite frankly, the stock looks dirt cheap. Today, investors can pick up Lloyds trading on a price-to-earnings (P/E) ratio of just 7.3. That’s way below the Footsie average of 11.

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In the years to come, that’s only expected to get better. By 2026, its P/E is expected to drop to just above six. On this basis, I think Lloyds looks undervalued. Analysts seem to agree too. The 12-month price target for the stock is 59p.

Not just cheap

But there’s more to Lloyds than just a cheap valuation. For example, there’s the opportunity to make some healthy passive income.

The stock has a dividend yield of 5%, comfortably above the Footsie average of 3.9%. Last year, its payout rose 15% to 2.76p per share.

Dividends are never guaranteed. But with Lloyds’ payout covered over two times by earnings, I’m confident that the business is in a strong position to keep rewarding shareholders.

This means while I wait for its share price to continue trending upward, I can make some cash on the side. With the dividends I receive, I simply reinvest them back into buy more shares.

Issues along the way

Of course, it won’t all be plain sailing. I see Lloyds facing some issues in the months to come.

For example, interest rates will squeeze its margins. Banks have prospered off the back of higher interest rates in the last few years, but this seems to be coming to an end. For Q1, Lloyds’ underlying net interest income fell by 10%.

What’s more, the bank is heavily reliant on the UK for generating its revenues. Unlike some competitors that have an international presence, Lloyds is entirely domestic.

The positives

But while falling rates will pose an issue, there are also positives. Firstly, it should provide investor sentiment with a boost. I’d expect this to reflect onto the Lloyds share price over time. Secondly, rates look likely to settle in the Goldilocks zone over the next few years, which Lloyds will benefit from.

We’re also beginning to see more positive signs from the domestic economy. While the initial outbreak of activity we saw at the beginning of 2024 in the housing market has subdued, house prices still grew 1.6% in April year on year. This is important for Lloyds as it’s the UK’s largest mortgage lender.

I’m buying up shares

I’d expect that we see further volatility with Lloyds in 2024. This will probably spill into 2025. But I’m confident that in the years to come, its share price will keep steadily rising.

That’s why I plan to hold onto the shares I already own. With any investable cash, I’ll be snapping up more cheap shares. I think investors should consider buying Lloyds.

The post After rising 29%, is there still any value in the Lloyds share price for investors? 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