Why does the Lloyds Banking Group PLC share price keep on falling?

Is investor sentiment set to decline further for Lloyds Banking Group PLC (LON:LLOY) (LLOY.L)?

Lloyds share price
Lloyds share price

The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price seems to be on a never-ending slide towards under 50p. It has dropped from 68p at the start of the year, and now trades at around 52p. There has been little sign of it mounting a sustained recovery, and its near-term prospects could be volatile in my opinion.

Clearly, the future for the UK economy remains uncertain at the moment. I wouldn’t be surprised if investors become increasingly concerned over future months in terms of the growth rate for the UK economy. And since the bank is focused on the UK economy, it could be hit by this trend to a larger degree than some of its FTSE 100 industry peers.

That said, I feel that in the long run the stock could offer good value for money. The Lloyds share price has a price to tangible book ratio of around 1, while its P/E ratio is little over 7. These figures are among the lowest I can find in the FTSE 100 banking sector, and suggest to me that there could be a margin of safety on offer.

In the long run, I think that the company could generate improving financial performance. In spite of all the political risk which is surrounding the UK at the moment, I feel that the economy could perform well over the long run. Forecasts are for continued growth in a strong world economy over the next few years. In such an environment, the prospects for UK shares may be better than the stock market is currently anticipating.

Therefore, after falling heavily over a prolonged time period, I’m cautiously optimistic about the investment potential of Lloyds. While risky and potentially volatile, I believe that its margin of safety and overall growth strategy could help it to warrant a higher valuation over the long run.

About Robert Stephens 5430 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 info@investomania.co.uk or use one of the other contact methods available on the 'Contact Us' page