By all rights, Barclays‘ (LSE: BARC) shares should cost an arm and a leg. They’ve climbed a blistering 145% in five years, with dividends on top. I’d expect the shares to look expensive as a result. But they don’t.
Barclays’ price-to-earnings ratio’s a modest 9.6. That’s well below today’s FTSE 100 average of around 15. On a forward basis, it’s just 8.4. Anybody glancing at the P/E in isolation would have thought the shares had taken a beating instead of soaring. So what’s going on?
First, I should point one thing out. All the big UK banking stocks have performed in a similar way to Barclays lately. Basically, they’ve gone gangbusters.
Is this FTSE 100 bank a bargain or a problem?
That’s mostly down to higher inflation and interest rates. While this is bad news for many businesses, it allows banks to widen their net interest margins, the gap between what they pay savers and charge borrowers. They’ve been making hay as a result. Check out Barclays’ full year pre-tax profits over the last five years.
- 2025 – £9.1bn
- 2024 – £8.1bn
- 2023 – £6.6bn
- 2022 – £7.0bn
- 2021 – £8.2bn
Profits did slip in 2022 and 2023 due to a range of factors, many of them one-offs. They include US litigation, a dip in investment banking fees, increased provision for bad debts, restructuring costs, and the ups and downs of market activity. Barclays has an investment banking arm in the US, which helps drive profits in the good times, but makes them more volatile too.
Today, the Iran war’s a worry. This could drive up customer loan impairments and thump investor confidence across the board. On the plus side, it might also drive up interest rates, and those margins.
Barclays has also been hit by growing concerns about the shadow banking sector. Its Q1 update on 28 April showed how this can quickly translate into real losses. Credit impairment charges rose to £823m, driven by a £228m loss on scandal-hit UK bridging loan provider Market Financial Solutions (MFS). Barclays hopes to recover half of that.
So there are reasons for the low valuation, but I still think Barclays looks cheap given the long-term opportunity. And Q1 results weren’t bad you know. Total income climbed 6% to £8.2bn, although higher costs and impairment charges meant profits rose at a more sluggish 3% to £2.8bn.
Can it still keep banking those profits?
Barclays has big plans to reward shareholders, lining up £15bn worth of dividends and share buybacks between 2026 and 2028. The board’s working hard to become more efficient, making £1.7bn of cost savings across 2024 and 2025. It’s looking to drive its return on tangible equity above 12%. That’s a key performance metric. It stood at 11.3% in 2025. The 2026 profit outlook’s positive.
I’ve been on a bank buying spree in May. I snapped up both HSBC and NatWest after their shares dipped on results day. I think today’s uncertainty offers a buying opportunity, and Barclays is well worth considering too. I’ll be keeping a close eye on this one over the summer. Maybe you should too.
