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I Lloyds Banking Group (LSE: LLOY) share price finally gained ground in 2024, up 28% year to date.
It paid a dividend of 4.8% per week. That can still mean good money if Lloyds can keep it.
The price-to-earnings ratio (P/E) still looks low and at 9.8, which is very low FTSE 100 average. And the forecasts for the next few years look strong.
Why is it cheap?
First, I want to think why Lloyds shares are seen at such low prices.
I see one temporary reason. And that's an 18% drop in earnings per share (EPS) on the cards for this year. At least, that's what the predictions say.
I think that's probably close to accurate too. The first quarter saw a 17% drop in statutory profit after tax. And EPS is down 13% compared to the first half of 2023.
And then in the longer term, we don't know yet what the Bank of England's interest rate cuts will do to Lloyds' lending margins. But they will definitely have some effect.
Uncertainty
This kind of uncertainty, especially with the possibility of lower earnings this year, could really keep the share price low. Investors, especially large City institutions, want decent security at the prices they are prepared to pay for shares.
But that, in my view, opens up opportunities for private investors like us to aim for better returns. If we are in it for the long term, we don't have to worry about what our portfolio looks like in the next few months, or the next year.
And looking ahead, I think the forecasts favor long-term investors.
Even if earnings fall as expected this year, retailers expect them to rise again in 2025. And they don't predict any lull in profit growth.
In fact, they show a dividend yield going back up to an impressive 6.2% by 2026. And we're still going to more than double the revenue.
The target value
I am always cautious about the seller's price. But, as part of my extensive research and with a little caution, I think they can help me make up my mind about the stock. After all, listening to a range of opinions has made me a better investor.
Currently, I see an average price target of just 64p. That's just over 61p at the time of writing.
Furthermore, the target range is from 53p to 78p, according to MarketScreener.
But that's a short-term view. And there seems to be a buying consensus at Lloyds right now.
Be prepared
However, the wide range seems to indicate uncertainty. And I'd say that means I'd have to be prepared for potential volatility in the short to medium term if I buy more now.
But that's fine with me, since I'm in the middle of long-term gains. And even though I don't want to sell, why should the share price go down?
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