At what price do Lloyds shares become a bargain?

Rising an amazing 79%, Lloyds Banking Group (LSE:LLOY) shares were one of the FTSE 100’s star performers in 2025. Since then however, the stock’s lost a bit of its shine.

Admittedly, I’ve been a little sceptical about the bank’s recent stock market valuation. But at what price would I consider buying its shares? After all, everyone likes a bargain. Let’s take a closer look.

Some common valuation measures

Today (13 March), one Lloyds share would cost around 95p. A typical earnings multiple for a high street bank is around nine, so based on its 2025 earnings per share (EPS) of 7p, Lloyds has a historic price-to-earnings (P/E) ratio of 13.6.

According to some analysts, a price-to-book (PTB) ratio of less than one could indicate a possible bargain. It means if a company ceased trading and all its assets were sold for the value stated in its most recent accounts — and then the proceeds used to clear all liabilities — there would be some money left over to return shareholders.

However, based on Lloyds’ 31 December 2025 balance sheet, there wouldn’t be any surplus cash. It had net assets per share of 71p. But analysts prefer to look only at tangible (physical) assets. Exclude these (£8.2bn net) and the bank’s tangible net assets per share (NAPS) is 57p.

Some prefer to look at dividends when assessing valuations. A yield of 6%+, over twice that of the FTSE 100, is likely to appeal to income investors. For 2025, the bank declared a dividend of 3.65p a share, implying a current yield of 3.9%. Remember, dividends are never guaranteed.

What does this mean?

To see where this leaves us, let’s work backwards and see what its share price would have to be to match the valuation measures described above.

For example, if Lloyds’ shares changed hands for 63p, it would have a P/E ratio of nine. At 61p, its yield would rise to 6%. And as we’ve seen, based on those current accounts, its tangible NAPS (book value) was 57p.

However, these figures are backwards looking. Based on the consensus of analysts’ forecasts for 2026, figures of 86p, 71p, and 63p respectively would result. This is an average of around 73p, well below its current level.

Head and heart

However, valuing stocks can be an art as well as a science. We’ve seen how the numbers stack up but what’s my gut instinct when it comes to the Lloyds share price?

Well, 95p feels too rich for me. Admittedly, the bank’s 2025 rally repeatedly proved me wrong. However, I do acknowledge that Lloyds has lots going for it. Its net interest margin is heading in the right direction and it doesn’t appear to have a problem with bad loans. Also, its balance sheet remains strong.  

However, should the shares sink to around 75p, I’ll definitely start to become interested again (I used to own the stock). Having said that, it isn’t clear cut.

If the shares did fall back to 75p – a 21% drop — it could be a sign that investors believe there’s a fundamental problem with the bank. That’s why I’ll have to revisit the investment case at that point to see what’s changed. Until then, I shall watch with interest from the sidelines.

The post At what price do Lloyds shares become a bargain? appeared first on The Motley Fool UK.

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James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group 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.

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