Prediction: in 12 months the rampant Barclays share price could turn £10,000 into…
Itâs been a stunning five years for the Barclays (LSE: BARC) share price, up 265% over that period. That would have turned a £10,000 investment into £36,500, with dividends on top. The obvious question is: can it keep flying at that speed?
Like the rest of the banking sector, Barclays has benefited from higher inflation and interest rates, which have allowed it to widen the gap between what it pays savers and charges borrowers. In simple terms, itâs been able to push mortgage rates up a little more than savings rates, and profited from the difference.
The decision to cling to its investment banking arm during the financial crisis also appears to have paid off. Barclays has benefited from volatile markets, strong trading revenues, and a rebound in advisory and dealmaking activity.
Top FTSE 100 growth stock
While boosting revenues, the board has also got a grip on costs, selling non-core assets, and rewarding shareholders with both dividends and share buybacks. It plans to return £10bn between 2024 and 2026 through dividends and buybacks, with a preference for the latter.
Profits have been climbing nicely too, rising 23% from £6.6bn in 2023 to £8.1bn in 2024. No wonder the shares have been doing well. But thereâs one obvious threat. Interest rates are no longer rising but falling. The Bank of England has already cut base rate six times to 3.75%, and the US is cutting too. Those net interest margin gains should start to reverse, squeezing profits.
The global economy remains fragile, which could drive up debt impairments as businesses and consumers struggle. AI-related job losses could make that worse. And thereâs always the risk of a regulatory shock or probe, particularly in the US, where the authorities tend to be more aggressive.
Higher price-to-earnings ratio
Barclays isnât as cheap as it was, with the price-to-earnings ratio creeping up to 13.6. The price-to-book value ranges from around 0.88 to 1.1, depending on the source. Given its strong run, I’d have expected it to be more expensive.
I prefer buying shares when theyâre struggling, rather than hoping already-impressive momentum continues. My big fear is buying just as everybody else decides to bank their profits. That said, Barclays remains tempting.
So what do the experts think? Today, the shares trade at around 481p. Seventeen analysts have published one-year price forecasts, and the range is wide, from 450p to 570p. The median figure is 520p. If correct, thatâs a modest rise of 7.7% from today. That’s a far cry from the 70% gain the shares have delivered over the past year.
Add a forecast dividend yield of 1.86% and the total return rises to around 9.56%, turning £10,000 into £10,956. Thatâs a major comedown after recent excitement. Of course, forecasts are only educated guesses, but they do reflect my own feeling that Barclays may slow from here.
I still think it’s worth considering today, with a long-term view. Investors could wait for a dip, but there’s no guarantee we’ll get one. Barclays might just continue climbing.
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Harvey Jones 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.
