Up 40%, can Lloyds' share price keep rising?

The past year has been good for shareholders Lloyds (LSE: LLOY). During those 12 months, Lloyds' share price increased by 40%. And even after that increase, the dark horse bank offers a juicy yield of 4.9%.

But the thing is, despite growing two-fifths, Lloyds shares still look cheap on some metrics. Should I buy?

It looks cheap… somehow

Another way would be to look at the bank's price-to-earnings (P/E) ratio. For 8, it looks cheap to me.

But when it comes to valuing bank stocks, revenue isn't the best metric to use. Another measure that many investors look at (often associated with the P/E ratio) is the price-to-book (P/B) ratio.

At Lloyds, that ratio currently stands at around 0.8. A number less than one indicates that the stock is trading below the fair value of the company's assets, which means it is a potential profit.

Valuing bank stocks is never easy

Here's the thing, though: none of these measurement tools are perfect, especially going forward.

Why? Think about what happens to a bank when the economy contracts. Generally, most people will fail to get a loan. As the country's biggest national lender, that's a risk for Lloyds.

In addition, housing prices may fall. Therefore, the bank can face a double whammy. Profits may decrease as more bad loan provisions are required, while book value may decrease at the same time as homes are worth less than before.

That is not a problem specific to Lloyds. It is the one facing any bank. Like its peers, Lloyds can be hit hard but there is only so much it can do to protect itself. In the worst case of a bankruptcy or bankruptcy, few lenders are immune.

Since the 2008 financial crisis, Lloyds (and other banks) have strengthened their financial base. That gives it a big cushion against volatility. But in the long run, I expect a major economic downturn and think it will hurt Lloyds' results and its share price.

I am in no rush to invest

Until then, I think stocks can continue to rise. After all, they still look cheap today on various valuation metrics. The bank has strong profitability, a large customer base and strong products.

But my concern is that both the UK and global economies look weak. Things can get better from here, but there is no guarantee that they will.

Once we appear to be comfortable in the ongoing part of the economic cycle, I would consider buying bank shares, including Lloyds, for my portfolio. For now though, I remain risk averse. So, although the price tag looks cheap, I don't expect to add Lloyds to my portfolio in the foreseeable future.