Barclays’ share price soars 63% this year, but is it still a bargain?
Barclays (LSE: BARC) share price has been a standout FTSE 100 performer during 2025, with a 63% rise yearâtoâdate. However, it could still go a lot higher based on its true value.
This is because a shareâs price is whatever the market will pay at any time. But value reflects the true worth of the underlying businessâs fundamentals.
So, how big is this gap for Barclays?
Comparative valuations
On the key price-to-sales ratio, Barclaysâ 2.3 is bottom of its peer group, which averages 3.3. The banks comprise Standard Chartered at 2.5, Lloyds at 3.1, NatWest at 3.3, and HSBC at 4.2.
So, it looks a bargain on this basis.
The same is true of its 9.8 price-to-earnings ratio against the 12.9 average of these competitors. And it is also true of its price-to-book ratio of just 0.8 compared to a 1.2 peer average.
The key test
These comparative ratios provide a broad context for any share price, in my view. But if a sector is over- or undervalued the valuations of individual stocks can be skewed.
This is why I prefer the discounted cash flow model. It provides a standalone valuation based on cash flow forecasts for the underlying business.
In Barclaysâ case, it shows the shares are a whopping 45% undervalued at their current £4.34 price.
Therefore, their âfair valueâ is £7.89.
Crucial earnings growth outlook
Growth in earnings is the key long-term driver of any firmâs stock price.
A notable risk to Barclays is slowing economic growth in its major markets of the UK and the US. Declining interest rates in both could also do the same.
That said, the consensus forecast of analysts is that its earnings will grow by an average of 8% a year to end-2027.
Howâs the core business look?
These strong forecasts look well-supported to me by excellent results in recent months.
Its Q3 numbers released on 30 September showed resilient profitability with a return on equity of 10.6%. Like return on equity, ROTE is calculated by dividing the companyâs net income by average shareholdersâ equity. But ROTE excludes intangible elements such as goodwill.
Even better for investors was the bank raising its 2025 ROTE guidance to “more than 11%”, from “around 11%” previously. For 2026, it targets a figure of 12%+. Positively as well, it announced a £500m buyback, which would tend to support share price gains. Â
Its full-year 2024 numbers published on 31 December saw ROTE rise from 11.8% to 12.5%. Earnings per share soared 29% from 28p to 36p.
My investment view
Despite being at a bargain-basement price, Barclays is not for me right now for two reasons.
First, I already own two banking stocks â HSBC and NatWest. So adding another would unbalance the risk-reward weighting of my portfolio.
Second, I prefer stocks with a higher dividend yield than the 2% Barclays currently offers. This is because I want to increasingly live off dividend income as I move into full retirement mode.
Having said that, for investors at an earlier stage of their investment cycle (I am over 50), I think the stock well worth considering. And that applies to those without these same portfolio balance issues I have.
For me, several other highly undervalued and high-yielding stocks have caught my attention recently.
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HSBC Holdings is an advertising partner of Motley Fool Money. Simon Watkins has positions in HSBC Holdings and NatWest Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, Lloyds Banking Group Plc, and Standard Chartered 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.
