With the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price having risen by over 5% in less than a month, investors may be feeling more optimistic about the company’s prospects.
In my view, though, there could be further challenges ahead for the business. Since it is focused on the UK due in part to its restructuring following the financial crisis, the outcome of the Brexit process could have a significant impact upon its financial performance. And since that is likely to cause at least some uncertainty in the near term in my opinion, the company’s stock price may remain volatile.
In spite of this, I feel that the stock may be able to deliver improving performance. I believe that its valuation may be relatively appealing at the moment. Even though it has made gains in recent weeks, a P/E ratio of around 8 suggests to me that it could offer good value for money. Likewise, a dividend yield of around 6% and a price to tangible book ratio of approximately 1.2 suggest that it could have a margin of safety.
The strategy being pursued by Lloyds could have a positive impact on its share price in the long run in my opinion. It has been able to strengthen its balance sheet while also making acquisitions, paying higher dividends and investing in its digital growth capabilities. This means that it may be able to offer an improving risk to reward ratio from an investment perspective that makes it more appealing to investors.
Given that it would require a rise of 18% in the Lloyds share price to reach 70p, I feel that it is achievable over the medium term. Sure, the company faces a number of risks, and Brexit could prove to be a threat over future months due to its UK exposure. But with what seems to be a low valuation and a sound strategy, I’m optimistic about its long-term potential.