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At what price would buying shares in Lloyds Banking Group (LSE: LLOY) stop being a bargain? Each investor may have their own views on that, but what is not in dispute is that the black horse bank has been rewarding for many shareholders this year. Since the start of 2025, the Lloyds share price has been on a tear. Longer term it has also done well, moving up by 177% in five years.
The share still sells for pennies – but lately has come tantalisingly close to breaking through the pound barrier.
I do not own the share. But might it make sense for me to pick up a few Lloyds shares for my portfolio now?
Good times for banking
Lloyds has done well, but it is far from alone. After uncertainty about the outlook for loan defaults and the wider economy during the pandemic, British banking has come back with a vengeance.
Partly, Lloyds’ success partly simply that trend. As the UK’s largest mortgage lender, in some ways it is a rough proxy for the health of the British economy in general and housing market specifically.
That can be a source of massive profits when things are going well, as they have been in recent years. But it also involves a risk.
If the housing market turns south, that could lead to more borrowers falling into arrears on their loan repayments. That could be bad news for Lloyds’ profits – and its share price.
For now, though, the good times continue to roll.
I don’t like this valuation!
But I am in no hurry to invest In Lloyds. In fact, for now I will not be buying any banking shares.
My main concern is the risk of a financial downturn pushing up loan defaults. For now, although lending in some parts of the global debt markets have been giving grounds for concern, the UK housing sector remains robust. Lloyds continues to strike an upbeat note about keeping default rates at a manageable level.
With its huge customer base and proven business model, Lloyds continues to be hugely profitable. That could help push the Lloyds share price further up, perhaps to the pound level, which is already close – and beyond.
Currently the Lloyds share price-to-earnings ratio is around 17. That does not strike me as cheap. At around 1.2, I also regard the current price-to-book ratio as on the costly side.
That does not mean the share price might not head higher from here. Clearly it has momentum. If the British economy picks up, bank earnings could benefit, potentially giving more support to the Lloyds share price.
But at its current level, the risk profile makes me uncomfortable. For that reason, despite the business strengths, I will not be investing.
