Why has Lloyds Banking Group PLC lost a third of its value in five years?

Could Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) deliver improving share price performance?

Lloyds Banking Group PLC
Lloyds Banking Group PLC

It’s been a tough five years for the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price, with it falling from 74p to 55p during that time. That’s a fall of over a third, and shows that investor sentiment towards the stock has deteriorated significantly during that time.

In my view, an uncertain outlook for the UK economy has not helped the bank. The EU referendum in 2016 seems to have caused a degree of uncertainty to creep in among consumers and businesses which could lead to further downgrades in the UK’s GDP growth forecasts.

Although Lloyds has stated in recent updates that it continues to make progress with its strategy, I feel that its shares could remain volatile in the near term. Brexit is a known unknown, and if it does cause disruption in the short run then it wouldn’t surprise me if the company’s share price moves lower.

Having said that, a P/E ratio of under 8 suggests to me that investors may have factored in to at least some degree the risks facing the bank. And in the last five years, I feel that it has made progress in delivering an improved strategy that could catalyse its future performance.

For instance, Lloyds now has a stronger balance sheet in my view, while it has been able to improve its growth prospects through investment in MBNA. The bank is also set to spend up to £3 billion on digital opportunities that could mean it becomes increasingly efficient as customers continue to move away from branches and towards mobile apps.

Although the stock may have an uncertain future, I feel that in the long run it could generate improved performance. In my view it has a large margin of safety and an improving strategy that could allow it to post a recovery over future years.

About Robert Stephens 5151 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page