The Barclays share price soars 23% in a month. What next?

Up to now, 2024 has been disappointing for the FTSE 100. Since 29 December, the UK index is nearly unchanged, dropping 0.1% of its worth this calendar 12 months. In the meantime, some Footsie shares have pulled away exhausting from the market. The Barclays (LSE: BARC) share worth has shot up.

The inventory soars

The shares of the Blue Eagle financial institution have surged since they hit a 52-week low of 128.12p on 30 October. I do not forget that day nicely, as a result of I attempted (and failed) to seek out sufficient money to sizeably improve our shareholding.

For the file, my spouse and I purchased a stake in Barclays in July 2022, paying 154.5p a share. Finally 12 months’s low, we had been sitting on a paper lack of 17%, however I had no intention of promoting. Certainly, if we might have doubled or tripled our holding again then, I’d have completed so with out hesitation.

Since 30 October, the FTSE 100 has risen by 5.5%, whereas the US S&P 500 index has leapt by 22.8%. In the meantime, the Barclays share worth has shot up by 35.4% — backing my hunch that this inventory was deeply undervalued at the moment.

Right here’s how the shares have carried out over 5 completely different timescales, primarily based on the closing worth of 176.92p on Friday (15 March).

Over all 5 intervals starting from one month to 5 years, Barclays inventory has produced optimistic returns.

Nevertheless, the above figures all exclude money dividends, that are getting more and more beneficiant from Britain’s greatest banks. And accumulating these money payouts is the primary purpose we purchased into Barclays in mid-2022.

What subsequent for the financial institution?

After surging by greater than a fifth in a month, the Barclays share worth has bounced again exhausting from its lows of late October. Whereas I’m not anticipating an analogous surge over the subsequent month, I’m relieved that the inventory is heading upwards once more.

Even after this rebound, Barclays’ present market worth is £26.8bn. If I might purchase the financial institution outright at this worth — and with none takeover premium — I’d gladly accomplish that. That’s as a result of I nonetheless view this inventory as undervalued versus the broader FTSE 100.

Primarily based on its trailing fundamentals, the shares commerce on a lowly 6.6 occasions earnings, delivering an earnings yield of 15.2% a 12 months. Whereas these figures are broadly in keeping with different main European banks, I see a lot of this sector as discount buys.

Likewise, Barclays’ trailing dividend yield of 4.5% a 12 months beats the Footsie’s yearly money yield of round 4%. Even higher, this payout is roofed nearly 3.4 occasions by historic earnings — a large margin of security. Additionally, this cost has risen from 6p a share in 2021, 7.25p in 2022, and 8p in 2023.

Then once more, I believe that UK financial institution earnings can be decrease this 12 months. Rising stress on family budgets (hit by sky-high vitality payments and better rates of interest) will probably crimp credit score progress. Additionally, I absolutely count on Barclays’ unhealthy money owed and mortgage losses to be increased this 12 months than final. That’s a danger.

Even so, as a long-term holder, I count on to be banking Barclays’ dividends for a few years to return!