In the last five years, the highest point at which the Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price has traded is around 90p. Today, it trades at less than two-thirds of that level, with investor sentiment being relatively weak at the moment.
In my view, investors may continue to be relatively downbeat about the bank’s prospects. There are fears surrounding the outlook for the UK economy, and I feel that this could keep demand for UK-focused stocks pegged back to at least some degree.
As a result, I wouldn’t be surprised if the bank’s share price struggles to gain traction in the near term. With Brexit uncertainty likely to ramp-up in my view over future months, I feel that investors may require a margin of safety given the uncertain prospects for the wider economy.
That said, I feel that Lloyds is performing well in spite of challenging operating conditions. The company is forecast to deliver positive EPS growth in the next two years, while it has recently reported improvements in areas such as capital ratios and its efficiency.
Further, the company could enjoy improving financial prospects from the potential for a higher interest rate over future years. This could provide a higher net interest margin for the banking industry, while the end of PPI claims over the next few years may lead to a stronger financial outlook for the stock.
With a P/E ratio of around 7.6, I think that the Lloyds share price could be relatively undervalued at the moment.
Sure, there are risks facing the business which could hold back its investment performance over the medium term. But from a long-run perspective, I believe that it is putting in place the right strategy through which to generate improving performance. As a result, I believe that it could return to its 5-year high over future years.