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At the beginning of this year, I decided to sell my shares in Barclays (LSE:BARC). The stock had risen above 200p and hit new three-year highs. However, Barclays' share price has continued to rise since then. It is now up 82% on last year to 256p. So did I make a terrible investment decision?
My opinion on Barclays
First, let's look at why I decided to sell the stock. I bought it at the beginning of the year when it was fundamentally undervalued. The price-to-earnings (P/E) ratio was around 5, half the benchmark figure of 10 I use.
The bank was struggling and needed restructuring. This was addressed in the first quarter, with a cost reduction exercise and a focus on the most profitable areas of the business. Investors welcomed this move and the share price soared.
I was able to see a high percentage gain in my shares in just under a year. However, it got to the point where I thought the size of the move seemed a bit exaggerated. The P/E ratio has increased (it's now just below 10), which makes me feel like the stock is now fairly valued.
In addition, the Bank of England committee began to reduce interest rates. This could likely put pressure on Barclays' net interest margin and reduce profitability next year.
Finally, I felt that there were better opportunities for my money in the United States, where companies with better growth prospects caught my attention.
A continuous rally
Since then, Barclays shares have continued to rise. The share price is now at the highest level since autumn 2015.
One factor in this was the strong third quarter results at the end of September. The business impressed investors with higher-than-expected net interest income, defying the notion that it would begin to decline. Additionally, tight cost control meant pre-tax profit was £2.2bn, up from £1.9bn in the third quarter of 2023.
It's true that the stock could continue to rise from here. I think we would need to see inflation start to rise again, which would force the central bank to keep interest rates high for longer. Furthermore, if the UK economy does better thanks to the new budget, Barclays should feel the benefit of increased spending and transactional activity.
Although the P/E ratio is now close to a fair value, this doesn't mean the share price can't rise. He FTSE 100 The average price/earnings ratio is 15.1. Therefore, there is room for the ratio to rise further before it starts to look overvalued.
The final result
Of course, I wish I had made more money from my Barclays investment. That's human nature. However, I followed my strategy of buying an undervalued stock and selling it when I thought it had returned to its fair value. From that perspective, I didn't do anything wrong.
