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It has been a good couple of years for shareholders in Barclays (LSE: BARC). The bank share has tripled over the past five years, moving up 215%. But, in fact, someone who bought as recently as just a couple of years ago, in January 2024, would also have seen their investment more than triple in value. Barclays shares have gone up by 240% during that period.
Despite that, the current price-to-earnings ratio is 12, which does not seem especially high.
So, could there be more road ahead for Barclays shares? And ought I to add some to my portfolio?
Banks are a on a roll
Over the past several years, my concern about investing in UK banks has been that the economic outlook has been sluggish, risking an increase in loan defaults.
However, as shares in Barclays and other banks have demonstrated, so far such fears have not come home to roost in a way to hurt share prices.
Interest rates have been declining lately but remain markedly higher than they were a few years ago, helping the banks’ ability to make money.
As for defaults, Barclays’ most recent quarter showed a sharp year-on-year increase in impairments, from £0.4bn to a still comfortably manageable £0.6bn. That is concerning, although the company pointed out that part of that was a single name charge of £0.1bn.
But, as the storming share price performance shows, Barclays has been doing well. Profit before tax in the most recent quarter alone was over £2bn.
Local and global exposure
London-listed rivals like Lloyds and Natwest are more firmly focused on the domestic market. But Barclays has a leg in both the UK and global camps, thanks to its large international investment banking business.
That can help insulate it to some extent from weakness in the British economy. However, it also brings the risk that wider economic problems on the world stage could hurt performance. With geopolitical risk remaining high and key economies showing limited growth prospects, that is a risk for Barclays.
Seen more positively, though, there is the prospect of a number of high-profile stock market listings this year both in London and internationally. That could help revenues and profits for a large investment bank such as Barclays.
The party could continue
On that basis, it is possible that Barclays shares will continue to move upwards.
The FTSE 100 bank remains solidly profitable. For now at least, there is no hard evidence that that is set to change any time soon.
Still, I remain nervous about the outlook for the UK economy specifically and global economic growth more generally.
Barclays sells for below book value, offering some cushion to investors – but if an economic storm comes, that book value could well be written down.
So, although I see potential for the share to keep rising, the risks do not sit easily with me, so I will not be investing.
