Lloyds‘ (LSE:LLOY) shares continue to climb in value, adding to the spectacular returns they delivered in 2025. At 104.1p per share, the FTSE 100 stock’s risen an impressive 45% over 12 months. That’s almost double the broader index’s 23% increase.
To put that into context, an investor who bought 10,000 shares in the bank a year ago would have made a tasty £3,234 capital gain. The value of that number of shares is now worth £10,410, up from £7,176 12 months ago.
That’s not all. Also adding in dividends of 3.33p per share, an investor would have enjoyed a total profit of £3,567 mixing in share price gains and income. The question is, can the Lloyds share price continue rocketing? I’m not so sure…
Premium valuation
Like other UK-focused banks, Lloyds faces a slew of challenges (which I’ll get onto in a bit). The issue is that its stunning recent price gains leave it with a valuation that, in my opinion, doesn’t reflect this reality.
At 16 times, the bank’s trailing 12-month price-to-earnings (P/E) ratio sits well above the 10-year average of 10-11. That’s also above the broader FTSE 100 average of 14.9.
Meanwhile, the firm’s price-to-book (P/B) multiple is 1.5, higher than the long-term average of 0.9. That above-1 reading also shows Lloyds’ shares trading at a premium to the value of its balance sheet assets.
Given the bank’s mounting problems, these numbers might not just limit further price gains. I fear it could prompt a full-blown pullback.
What are the dangers?
Like retail banks the world over, Lloyds could be hit by fast-shrinking margins as central banks slash interest rates. But UK operators like this face more specific local problems, like a stagnating economy that could limit loan growth. In fact, with unemployment on the charge and real wage growth slipping, bank impairments might also soar.
Unlike businesses with emerging market exposure like HSBC and Santander, Britain’s banks also have limited growth potential given the comparitive maturity of the UK market. In this climate, do Lloyds shares deserve that enormous valuation, currently the highest among the London stock market’s banks? I’m not convinced.
When you add in growing competitive pressures from challenger banks, increasing costs, and the possibility of heavy fines for previous motor finance misconduct, the risks appear significant.
Are Lloyds shares a potential buy?
So why might investors consider buying the FTSE 100 bank? Strong brand power, a recovering housing market, and ongoing digitalisation could boost earnings and help Lloyds’ share price to climb. What’s more, predicted dividends for the near-term are well covered by expected profits alongside the company’s strong balance sheet. The dividend yield here is 4.1% for 2026.
But on balance, I’m not tempted to add Lloyds’ shares to my own portfolio. It might be attractive for more risk-tolerant investors, but I think I’ve found more attractive stocks to buy today.
