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Since this time in January 2024, Lloyds Banking Group (LSE: LLOY) shares have soared 147% as I write on 22 January. That means £10,000 invested back then would have climbed to £24,700 on the share price alone — and that’s without including any dividends.
At the time, our ten grand would have been enough to hoover up approximately 24,300 shares. And by today, they’d have added a fraction over £1,500 in dividend cash to the pot. So that’s a total of £26,200. After that kind of gain in such a short period, it must be time to consider selling up and putting the cash somewhere else, right? Well, I’m certainly not doing that, and I’ll tell you why.
The madness of crowds
Let’s just pause a moment and think about this stunning two-year share price performance. It’s the kind of thing we might expect from a company that’s escaped from the threat of going bust and turned to cracking earnings growth, like Rolls-Royce Holdings. Or from a tech stock profiting from the AI boom, like Nvidia.
But it’s not something that typically happens with a boring old FTSE 100 bank. Or a sector with possibly the best long-term reliability of all. Yes, the banking business had had its crises. But when Lloyds shares were trading on price-to-earnings (P/E) ratios down around six, that was a simply irrational bank stock valuation.
Big investors had taken leave of their senses. Just like they sometimes do with over-hyped growth stocks. And it reinforces something close to The Motley Fool‘s hearts. Stay fixed on the long term, and benefit from the madness of crowds whenever we get the chance.
Take some profits?
So why aren’t I selling and taking some of my profit now? It’s simply because I don’t see Lloyds shares as overvalued today. Not even now they’re worth well over double what they were two short years ago.
Even after that skyrocketing performance, we’re still looking at a forecast P/E of only a bit over 15 for the 2025 year — results are due 29 January. Maybe that’s a fraction high now for the banking sector. And maybe we’ll have some short-term share price weakness. That’s entirely possible.
But a couple of years of rising forecast earnings could drop that multiple to only around nine again by 2027. Unless anything catastrophic happens, I think that would be screaming cheap. And if I see improving value like that in the coming years, that makes Lloyds a Hold for me. And maybe even a top-up Buy.
What catastrophe?
I might be tempting fate by mentioning the possibility of something catastrophic happening. Lloyds, along with other banks, has a track record of dreaming up new disasters just when everything looks fine. I reckon the bank got away relatively lightly from the car loan mis-selling thing, for example.
The economic outlook is still uncertain. And if anything it’s becoming less certain based on Donald Trump’s unique approach to global trade. So yes, there’s still banking risk here.
But Lloyds remains one of my top stocks for long-term investors to consider.
