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Is calling Barclays (LSE: BARC) shares sensational going too far? Investing is a serious business. Best to avoid tabloid hyperbole. Yet the description fits. The shares are up 83% over the past year and an eye-popping 215% over two years.
If Barclays was a whizzy penny stock, growth investors would be falling over themselves to grab some of that momentum. But it isn’t. It’s a mighty UK blue-chip with a market capitalisation of £67bn. Common sense suggests the Barclays share price must top out eventually. So how long can it keep this up?
FTSE 100 growth star
On one key measure it looks like there’s still room to run. The price-to-earnings ratio stands at just 14.5, which is below the FTSE 100 average of around 21. It also looks reasonable value on a price-to-book (P/B) basis too, at around 0.89. That’s below the figure of 1 often seen as fair value. That said, the P/B’s at a 10-year high for Barclays.
So I don’t think it’s raced too far ahead of itself and become untouchably expensive. I’m always on red alert for those.
Barclays still has bags of momentum, the shares climbing 26.62% over the last three months. A £10,000 investment would have grown to £12,662 in that time.
There’s been no dividend during that period, with the last paid on 16 September. Barclays goes ex-dividend on 26 February, so there’s still time for investors to catch the next one. Should they go for it?
Barclays still has a substantial US investment banking and markets business, which it stubbornly clung on to through the financial crisis. This spans M&A advisory, corporate finance, trading, brokerage and personal finance. That footprint’s growing. In October, Barclays agreed to buy US personal loan platform Best Egg for $800m.
The flipside is tougher regulation. US banking and securities oversight is famously strict, particularly for foreign banks. Big fines are always a risk.
Buybacks or dividends: your choice?
Barclays is expanding elsewhere too, securing an investment banking licence in Saudi Arabia as part of its Middle East expansion. This international reach gives it more growth potential than a largely UK-focused operator like Lloyds Banking Group. It also ups the risks.
The dividend yield’s modest at 1.73%. The board prefers to reward shareholders through share buybacks instead. Investors got a surprise $500m buyback in the autumn, part of plans to return at least £10bn of capital between 2024 and 2026. Income seekers may prefer HSBC, Lloyds or NatWest instead, which all prioritise dividends.
Can Barclays keep delivering? It did post a 7% drop in third-quarter profits to £2bn, largely due to motor finance impairments. Even so, it remains on track for its best-ever year for revenues.
Accidents can happen. In a wider economic downturn, Barclays would be on the front line, with rising defaults a risk. Falling interest rates could squeeze net interest margins and dent profitability. Broker forecasts are hardly inspiring. The consensus one-year price target of 484p is roughly where the shares trade today.
I still think Barclays shares are well worth considering.They may be a little less sensational going forward, but could still be a hugely rewarding long-term investment.
