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I have always been fascinated by it Lloyds (LSE: LLOY) price. Despite looking cheap, the stock hasn't budged for years. But in recent times, it seems to have found a new lease of life.
The stock is now up 22.7% year to date. After posting this strong performance in 2024, that brings its trailing 12-month gains to 31.3%.
Long-term shareholders are finally starting to see a return on their investment. I FTSE 100 the bank is now up 7.4% over the past five years. At that time, I would have shelled out 54.9p for a share. Today (26 September), I will pay 59p.
But what could be next in store for the high street stalwart? After a dramatic rise, is the stock still going? Let's take a closer look.
Cheap as chips?
Assessing whether a stock has room to grow is a difficult task. After all, the stock market is unpredictable. In fact, no one knows what will happen. That said, looking at Lloyds' valuation will give a good insight into whether its share price can continue to rise.
To do that, I will use the key price-to-earnings (P/E) ratio. Lloyds currently trades on a P/E of 8.4, which looks cheap to me. The FTSE 100 average is 11. So, paying less than that for a business with the quality of Lloyds feels like a steal.
Moreover, its forward P/E is just 6.3. Once again, we continue that, it seems that even after rising this year, Lloyds can continue its momentum in the coming times.
I would also use the price to book (P/B) ratio. This is a common metric used to value banks. Currently, Lloyds currently has a P/B of just over 0.9, where 1 is considered a fair value.
Challenges ahead?
So, I would argue at 59p, the FTSE 100 bank still looks cheap. But it will certainly face challenges in the coming months.
The key will be interest rates. We have now reduced our first rate in the UK. And we just saw the Fed cut rates by 0.5% across the pool. While overall falling prices will give the investor a sense of lift, this will hurt Lloyds' margins.
This is because the lower rates mean that the bank cannot charge customers more for borrowing money. We have already seen this work. During the first half of the year, the company's average interest rate fell from 3.18% to 2.94%.
Furthermore, Lloyds relies only on the UK for its profits. If the domestic economy slows down, that can have an impact on business.
Chunky yield
So, I expect some flexibility. But I'm content with riding the temporary ups and downs. That's especially true since the income from Lloyds' 4.9% dividend yield will disturb me. That's above the FTSE 100 average of 3.6%. Last year, the company increased its payout by 15% to 2.76pa share.
More to offer?
Even after the rise this year, I still see value in Lloyds shares. And if I had the money today, I would happily add the stock to my portfolio.
While I expect its budget price to have peaks and troughs, I see long-term value in Footsie Bank.
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