With a P/E ratio of around 8, I think the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price is relatively cheap at the moment.
Even though the FTSE 100 has declined by over 10% in the last six months, I’m struggling to find many large-cap shares with single-digit P/E ratios. Alongside its rating, the bank has a dividend yield of around 6% and a price to tangible book ratio that is around 1.1. These figures suggest to me that the stock could be undervalued versus its index and industry peers.
Of course, the prospects for the Lloyds share price may be uncertain at the moment. The UK economy’s GDP growth outlook has come under pressure in 2018, with forecasts being downgraded. I wouldn’t be surprised if there is further downward movement in this area, since the Brexit process may become increasingly complex and uncertain.
Therefore, the FTSE 100 company’s operating environment may become more difficult in future months. This may cause volatility for its stock price, and I think there could be further falls ahead if the political outlook for the UK becomes increasingly challenging.
That said, in the long run I believe that the current valuation of Lloyds may prove to be somewhat overly pessimistic. The bank has made significant improvements to its balance sheet in recent years to my mind, and has become increasingly efficient at a time when some of its industry peers have failed to effectively cut costs.
Investment is also being made in growth areas such as mobile technology and acquisitions. Further down the line, such investments could create a stronger business in my view.
Therefore, while there could be further turbulence ahead and I can understand why investors are cautious about its outlook, I believe the stock may have investment potential over a long-term time period.