With the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price having fallen by 9% in the last year, its investment prospects may seem to be relatively downbeat.
Investor sentiment may remain weak in the short term, since from my experience it can be resistant to change. And with Brexit talks ongoing ahead of an October deadline for a withdrawal treaty, it wouldn’t surprise me if uncertainty regarding UK-focused stocks remains high.
However, in the long run I feel that the Lloyds share price could deliver a successful recovery. It seems to be in a strong position relative to its peers in areas such as its financial standing and cost to income ratio. This could mean that in the long run it has greater investment potential than other large-cap UK banking stocks.
Additionally, the company is set to put in place an ambitious growth strategy. It is seeking to invest up to £3 billion in areas such as digital and improving the customer offer. This could lead to a stronger position versus peers, with the acquisition of MBNA also having the potential to improve its financial performance.
With Lloyds having fallen in the last year, it now has a PE ratio of around 11 and a dividend yield in excess of 5%. Both of these figures suggest to me that the company may be undervalued at the moment. While it could be undervalued for many months to come, in the long term an improving financial performance could warrant a higher valuation.
Sure, it lacks the international diversity of its peers. But with it recently reporting that it has seen no negative impact from Brexit as yet and with PPI claims set to come to an end over the medium term, its stock price performance may improve. As a result, I’m upbeat about its investment potential.