Lloyds’ (LSE: LLOY) shares have risen to a level not consistently seen since June 2015.
I think this is more a testament to the power of huge share buybacks than to recent positive fundamental factors. If done in sufficient size, these cannot just support an ailing share price but can push it much higher too.
In Lloyds’ case, it undertook a £2bn programme in 2023, another £2bn in 2024, and a further £2bn is ongoing.
To ascertain if there is any fundamental substance to this price rise, I re-examined the business. And to find out if there is any value in the stock, I ran the key numbers.
Hard times
Lloyds’ Q3 2025 results released on 23 October were poor. Profit before tax plunged 36% to £1.174bn, while earnings per share collapsed 47% to 1p.
Costs ballooned 37% to £3.177bn and return on tangible equity (ROTE) nearly halved – from 15.2% in Q3 2024 to 7.5%. Unlike return on equity, ROTE excludes intangible elements such as goodwill.
Consequently, Lloyds downgraded its guidance for the year. It now expects to make ROTE of around 12% in 2025, down from previous guidance of 13.5%.
These figures reflect an additional £800m charge in the quarter to compensate customers for the motor-finance mis-selling scandal. That brought its total provisions for the scandal to £1.95bn so far.
However, more charges may be to come for Lloyds, marking a major risk for it.
The Financial Conduct Authority (FCA) initially estimated £8.2bn in total industry-wide compensation. This was based on 14.2m motor finance agreements potentially affected.
But the FCA’s compensation scheme is still in the consultation phase. This means the final framework — and Lloyds’ total liability — remains unresolved. The Authority is expected to publish its final rules for the scheme in early 2026.
Price versus value
A share’s price is whatever the market is willing to pay at any given time. But its value reflects the true worth of the underlying business.
In this latter sense, then, Lloyds’ elevated share price is largely irrelevant to whether it has value in it. Equally, its Q3 results and the motor mis-selling scandal may not affect the long-term value of the business.
The best method I have found to ascertain any share’s ‘fair value’ is discounted cash flow analysis. This identifies where any stock should be priced, based on cash flow forecasts for the underlying business.
These, in turn, factor in the key driver of any business’s stock price over time, which is earnings growth. In Lloyds’ case, analysts forecast that this growth will be 16.7% a year to end-2027.
At the same time, the DCF shows its shares are 36% undervalued at their current 89p price.
Therefore, their fair value is £1.39.
My investment view
I think there may be price shocks for Lloyds in the short term, based on its motor insurance exposure.
The effects of these on its share price would be magnified, given its sub-£1 level.
Therefore, the stock is not for me.
However, for investors with a higher risk tolerance, Lloyds may be worth considering for the long term.
It has strong earnings growth potential that should ultimately drive its share price (and dividends) higher.
