Could the Barclays share price reach £5? Here’s what needs to happen

With the Barclays (LSE:BARC) share price climbing by an impressive 52% over the last 12 months, shareholders are understandably celebrating. But is there a chance that the banking stock could continue to climb upwards from here and potentially even hit the £5 threshold for the first time since the 2008 financial crisis?

Let’s investigate the possibility.

Reaching the goal

Following its recent rally, shares of Barclays are currently hovering around 340p or £3.40. While that may not seem too far behind the £5 target, it requires the business, or at least its market cap, to expand by 47%. And for a mature industry titan, that’s no easy feat, especially in the short term.

From a valuation perspective, Barclays does have a slight advantage given that its price-to-earnings ratio is currently around 9 versus the industry average of 11. That implies if the bank can continue to deliver solid results, improving investor sentiment may push the shares in closer alignment with the wider banking industry – a potential 22% bump.

But to unlock the remaining value, quite a few additional feats will likely be required. As a result of clever hedging strategies, the bank’s interest income for 2025 is on track to reach £12.2bn versus £11.2bn in 2024. That’s despite the Bank of England steadily chipping away at interest rates.

The lower interest rate environment also increases merger & acquisition activity for many of its investment banking clients, creating a welcome tailwind. That certainly gives a helping hand in growing its return on tangible equity, as would strong growth in the British economy. However, the latter seems to be quite elusive at the moment.

Combining this progress with continues share buyback schemes could be sufficient to elevate the Barclays share price to £5. But realistically speaking, the process is likely to take several years – a conclusion many institutional analysts have also reached given the average 12-month share price target for Barclays is currently £3.82.

Nothing is guaranteed

I’ve already touched on the lack of economic growth in Britain. And if market activity doesn’t pick up as interest rates fall, then that could put the brakes on Barclays’ current growth trajectory. After all, financial hedges don’t last forever, and the lower lending margins will need to be offset by higher lending volumes.

Beyond the macroeconomic risks, there’s also the growing pressure from disruptive fintechs to take into consideration, such as rapidly expanding platforms like Revolut. With new retail banking solutions emerging for savers and investors, it draws deposits away from traditional banks, limiting their ability to scale lending activity due to regulatory liquidity requirements.

The bottom line

Taking everything into account, I remain cautiously optimistic about Barclays’ long-term potential. It remains a pivotal business in the British economy, positioned to thrive should growth eventually rematerialise. Overall, I think it’s unlikely that the share price will reach £5 in 2025. But for those looking out to the long term, it may be worth giving this bank a closer look.

The post Could the Barclays share price reach £5? Here’s what needs to happen appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.