Down 25%, are Barclays shares too cheap to miss?

From a 52-week high, Barclays‘ (LSE: BARC) shares fell 25% to their lowest point of the past few days. We’re still looking at a more-than-doubling over the past five years, but that’s really quite a reverse. And it makes me think Barclays could be one of the FTSE 100‘s hottest stocks right now.

The forecast dividend yield isn’t such a star attraction these days, with the five-year share price rise pushing it down to just 2.2%. So there are far more attractive high yields out there right now.

But forecast valuations have cratered, and there’s a real chance Barclays’ shares could become seriously undervalued again in the not-too-distant future.

P/E down to 5.5 again?

Yes, we could see a P/E of just 5.5. That’s where analyst forecasts show the Barclays price-to-earnings (P/E) ratio going by 2028. Now, we really need to be careful here. Much of the data that went into current forecasts came from before the attacks on Iran, the closing of the Strait of Hormuz, and oil prices soaring above $100.

But will the conflict damage Barclays’ profit all that much? Well maybe, probably in the short term I guess. But a year from now after the fighting has hopefully long stopped, why should it? The truth is we just don’t know, and that’s a real problem. Huge uncertainty now hangs over global economies, and the financial sector suddenly looks a whole lot riskier.

It’s enough to make the big institutional investors pull out of bank shares. And they tend to be the biggest holders, so their bearishness can easily trigger a share price slump. But you know what that can mean for private investors who don’t have to make our quarterly results look good? Yes, an opportunity to consider buying Barclays’ shares at a potential future valuation that had looked long gone.

Next three years

Even the trailing P/E of its shares, based on 2025 full-year earnings, is now down at a bit over nine. I do think the persistent risk associated with the sector means bank valuations should be on the low side. I mean relative to the FTSE average, but is Barclays a bit too low now? It is in my books.

The key forecast standout is seeing earnings per share (EPS) predicted to soar by 67% from 2025 to 2028. There should surely be a growth premium in the share price for that, shouldn’t there? As it is, we could be looking at a valuation last seen around 2022 to 2023. And that’s from before the recent share price surge, which really only kicked off in 2024.

What next?

So what should we do? We must remember these forecasts are up in the air again after the Middle East events of the past weeks. But it doesn’t necessarily mean Barclays won’t perform as predicted — it just means we’re now more uncertain.

I’d previously rated Barclays’ shares as fully valued, but it’s definitely something to consider in the event of future dips.. and the current one that really is quite a big dip!

The post Down 25%, are Barclays shares too cheap to miss? appeared first on The Motley Fool UK.

More reading

• Down 20%! I think the market’s got these 2 cheap shares all wrong
• Will Barclays’ share price rise 17%, 40% or 53% over the next year?
• Down 15% with a P/E below 9. What on earth should I do about Barclays shares?
• How much do I need in an ISA to earn £1,000 monthly from UK shares?
• Barclays shares are down 18%. Time to consider buying?

Alan Oscroft 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.

See author's posts