Why the Barclays share price is currently its most undervalued in months

It’s been a rocky first quarter for a lot of stocks, especially in recent weeks. Geopolitical tensions generally, war in the Middle East specifically, higher energy prices, and more have all impacted companies differently. Some have thrived. Yet when looking at the Barclays (LSE:BARC) share price, it’s clear that 2026 hasn’t got off to a good start. After falling 18% in the past three months, I think now could be a great time to consider buying. But why?

Factors to consider

From a valuation perspective, Barclays is starting to flash as undervalued. For example, the price-to-earnings (P/E) ratio has fallen to 8.77. As a general rule, I see anything below 10 as being undervalued. For comparison, the FTSE 100 average is 17.6. So this can be taken as indicating that the stock is undervalued on both an absolute and a relative basis.

Another issue is that the share price isn’t factoring in the potential for interest rate hikes this year. Due to the oil price surge, some are worried it will translate to higher inflation in the coming months in the UK. If sustained, this could force the Bank of England to raise interest rates later this summer. This could benefit Barclays because it would act to increase the net interest margin. In turn, the net interest income would pick up, directly filtering down to profits.

Yet from looking at the share price of the past month, I don’t believe it has taken into account the potential for an income boost via higher interest rates, making it undervalued. In fact, the stock just hit its lowest price since last October! Looking out over a longer time period shows the stock up 26% in the last year. Therefore, the move lower recently could turn out to just be a dip, with the long-term trend higher still being intact.

Reasons for the decline

There are some key issues that can explain the stock’s recent underperformance. There have been some concerns in the sector about exposure to private credit funds. These funds are struggling, with some questioning the quality of the loans being held on their books. Banks like Barclays service these companies, and in some cases have provided credit. If the funds default, it could cause a big headache.

Further, news of a UK banking license for fintech Revolut, along with other new disrupters, is worrying some investors about Barclays’ future. It could lose market share if these other firms can woo clients in the coming year.

Plenty of green flags

Ok, that all sounds very negative. But I’m optimistic overall. Despite these worries, I believe the stock is the most undervalued it has been since last October. Given the outlook regarding interest rates, along with metrics such as the P/E ratio, I believe it’s a stock that investors could consider right now.

The post Why the Barclays share price is currently its most undervalued in months appeared first on The Motley Fool UK.

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Jon Smith 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.