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Earlier this year, I decided to sell my property Barclays (LSE: BARC). The stock jumped more than 200p and had hit a three-year high. However, since then the Barclays share price has continued to rally. It is now up 82% on last year at 256p. Did I make a bad investment decision?
My thoughts on Barclays
First let’s examine why I decided to sell the stock. I bought it at the beginning of the year when it was not that important. The price-to-earnings ratio (P/E) was about 5, half the value of the 10 ratio I use.
The bank was struggling and needed to be shaken up. This was addressed in Q1, with a plan to cut costs and focus on more profitable areas of the company. Investors took this well and the share price jumped.
I was able to see a huge percentage gain on my shares in just under a year. However, it got to the point where I thought the size of the movement seemed a bit stretched. The P/E ratio has jumped (now below 10), which makes me feel the stock is now well known.
In addition, the Bank of England committee began lowering interest rates. This could put pressure on Barclays’ interest income and lower profits next year.
Finally, I felt that there were better opportunities for my money in the US, where companies were attracting my attention with better growth prospects.
A rally in progress
Since then, Barclays shares have continued to rise. The stock price is now at its highest level since the fall of 2015.
The factor here has been the strong Q3 results since late September. The business has impressed investors with higher-than-expected interest income, defying expectations that it will start to decline. In addition, tight cost control meant that profit before tax was £2.2bn, up from £1.9bn from Q3 2023.
It’s true that the stock could go higher from here. I think we will have to see inflation first again, causing the central bank to keep interest rates higher for longer. Furthermore, if the UK economy improves significantly as a result of the new budget, Barclays should benefit from higher spending and buying activity.
Even if the P/E ratio is now close to the fair value, this does not mean that the share price will not increase. I FTSE 100 The average P/E ratio is 15.1. So there is room for the ratio to go up a lot before it starts to get too shiny.
An important point
Yes, I wish I had made more money on my Barclays investment. That is human nature. However, I stuck to my strategy of buying undervalued stocks and selling them when I thought they had returned to a fair value. From that point of view, I did nothing wrong.
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