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The Lloyds (LSE:LLOY) share price surged in 2025. It’s up 71% over the past 12 months, which is very impressive.
Of course, only some of that reflects the company’s performance. Share price are driven by multiple factors, and I’d suggest there’s an element of self-reinforcing momentum, or just FOMO.
Don’t get me wrong, momentum is actually one of the best indicators for future performance, but lots of investors just like to invest in stocks that are going up because they assume that will carry on. I think that may also be a factor here.
We could call this a re-rating. A re-rating occurs when the market assigns a higher valuation multiple to a company’s earnings, driven by a shift in investor perception rather than a change in underlying performance.
Either way, earnings are growing, and the shares have been surging.
The forecasts for 2026
The average share price forecast — which typically reflects analysts’ 12-month outlook — suggests that Lloyds is modestly undervalued, with a consensus price target of 99.13p. That’s 4.3% above the current share price.
While this points to limited near-term appreciation, it’s notable that the shares have not traded above £1 since 2008. Moving above the £1 mark, which is very possible, would represents a milestone for the bank.
For additional context, the bank traded as high as £3 per share in 2007 and £5 per share around the millennium. There are plenty of British companies that have been on a slow descent over the past 20 years.
A sustained move above £1 would be a clear signal that Lloyds is continuing its recovery towards something closer to its former strength.
What’s behind these numbers?
There’s a lot to consider when looking at a stock, and a bank can be more challenging than most.
Starting with the simple stuff, we can see that it’s trading around 12.4 times forward earnings (2025), and that figure falls to 9.7 times for 2026 on a rolling one-year basis.
That’s not cheap compared to historical averages, but analysts are forecasting some pretty serious growth. In fact, the average earnings growth rate for 2025 and 2026 is around 25%.
This reflects materially high interest rates and the likelihood that impairment charges for the motor finance scandal have already been recognised.
The dividend yield at 3.8% is strong but considerably down from where it was a few years ago. Obviously, dividend yields and share prices are inversely correlated. Even though dividend payments have increased, the share price has increased much faster.
In terms of profitability, it’s not as efficient as some of its peers. It’s also a less diversified operator with no investment arm and no operations outside of the UK.
I actually find it quite interesting that the market seems willing to overlook its lack of diversification today. It was problematic for many investors a few years ago.
The bottom line
Personally, I continue to hold Lloyds in my portfolio. And I still think it’s worth considering for investors. However, I’d caution that there could be better value elsewhere in the UK banking sector.
