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Lloyds Banking Group (LSE: LLOY) shares have long been considered a “value trap” by some market experts. In a way, I agree, because the Lloyds share price hasn’t sustained much bullish momentum since the global financial crisis of 2007/09.
The ups and downs of the Lloyds share price
At its 52-week high on February 3, 2022, Lloyds shares hit 54.5 pence. Three weeks later, Russia invaded the Ukraine and the stock markets plummeted. At its 2022 low, the share price plunged to 38.1 pence on March 7.
To me, the one-year chart of the Lloyds share price resembles the teeth of a saw: up and down and up and down. However, stocks have made little progress over 12 months, as this chart shows:
| Actual Price | 52.77p |
| One day | -0.4% |
| Five days | 5.3% |
| One month | 12.0% |
| Six months | 17.1% |
| One year | 3.4% |
| Five years | -23.2% |
Lloyds share price got off to a positive start to 2023, gaining 12% in the first month. It’s also up more than a sixth in six months, but only 3.4% in the past year. That’s a bit behind the widest. FTSE 100 index, (+4.2% in the same period). See what I mean about it lacking price momentum?
At its 2022 high, Lloyds’ share price hit 56 pence on January 17. Today, it hovers just 5.8% below that peak. This gives Black Horse bank a market valuation of £35.5bn, making it a heavy hitter on the FTSE 100.
Value Trap or Bargain Buy?
My wife bought Lloyds shares at 43.45 pence at the end of June 2022. With the share price at 52.77 pence, our holding increased by more than a fifth (+21.4%) in seven months. I’m happy with this paper gain so far, as Lloyds is often seen as a ‘boring’ value stock.
But dark clouds are gathering over British banks. On the one hand, rising interest rates are boosting banks’ credit spreads and generating higher net interest income. On the other hand, skyrocketing prices and skyrocketing energy bills are taking a toll on disposable income.
Also, higher mortgage rates mean higher monthly mortgage payments. Eventually, this could increase bad debts and loan losses. In fact, I expect Lloyds write-downs in 2023 to be well above 2022 figures. Like it or not, the UK is headed for recession, which is bad news for banks.
Value Trap or Bargain Buy? Neither!
Lloyds shares are widely spread and traded so hundreds of thousands of investors follow their price action (including me). But while I would say that Lloyds shares are not expensive at the moment, I also feel that they are no longer surprisingly cheap.
The stock is trading with a price-earnings ratio of 8.7 and an annual earnings yield of 11.5%. Whilst this is ‘cheaper’ than the broader FTSE 100, it may reflect a market discount due to the group’s heavy exposure to a failing UK economy.
While the bank’s dividend yield of 4% is in line with the broader Footsie, earnings cover it handsomely at 2.8 times. That’s a solid margin of safety. So would you buy Lloyds shares right now? I think not, because we already have some and the stocks don’t look very cheap today!
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