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Is it time to double down on the Barclays share price?

Rupert Hargreaves
·3-min read
View of Canary Wharf
View of Canary Wharf

The Barclays (LSE: BARC) share price has crumbled in value this year. Shares in the lender have fallen nearly 50% year-to-date. Following these declines, the stock looks attractive from a value perspective. However, with risks to the global economy growing, the outlook for the banking group is highly uncertain.

As such, today, I’m going to take a look at the Barclays share price to establish if it’s worth buying at current levels, or investors should steer clear.

The Barclays share price uncertainty

The most significant risk facing Barclays is the second wave of coronavirus. A second wave and national lockdown could pile further pain on the UK economy, which is already reeling from the first lockdown.

The bank’s second-quarter trading update showed how much of an impact the first lockdown had on the group’s customers.

Barclays set aside £3.7bn to cover bad loans as a result of the coronavirus crisis. A second shutdown could see the bank dramatically increase this estimate. That would further hurt the group’s profitability and solvency.

That said, despite these losses, regulators and analysts agree that Barclays’ financial position is robust. While rising loan losses are disappointing, the lender’s work since the financial crisis to strengthen its balance sheet should ensure that it can take the losses in its stride.

Therefore, it looks to me as if the bank is unlikely to collapse even in the worst-case scenario.

Nevertheless, low-interest rates and loan losses may continue to weigh on profits for some time. This could be the biggest challenge facing the business. The Barclays share price is unlikely to return to previous levels until profits start to grow again. That could take some time.

What’s more, depressed profitability may limit the group’s dividend potential.

Value opportunity

Considering all of the above, I think the outlook for the Barclays share price is uncertain.

That being said, it looks to me as if much of this uncertainty is already reflected in the stock. Indeed, shares in the lender are currently trading around the same level they were at the height of the financial crisis. Even though the bank is in a significantly stronger position than it was 12 years ago.

The stock also looks cheap from a fundamental as well as price perspective. It’s trading at a price-to-forward (P/E) earnings multiple of 7.3, and a price-to-book (P/B) value of 0.3. These numbers suggest the shares offer a wide margin of safety at current levels. They also back up my belief that most of the bad news is already reflected in the Barclays share price.

So, all in all, while Barclays is facing an uncertain outlook, the stock looks very cheap at current levels. As such, risk-tolerant, long-term investors who can look past the bank’s current problems, might be able to profit from buying the shares at current levels.

The post Is it time to double down on the Barclays share price? appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2020