Stock market

If I had put £1,000 into Barclays shares a year ago, how much would I have now?

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Barclays (LSE:BARC) shares were among the top performers. FTSE 100 In the last 12 months. It seems that the negative sentiment around the British bank has finally subsided, and things are looking up.

Barclays shares have gained 28.5% over the past 12 months. So if I had put £1,000 into banking stocks a year ago, today I would have £1,285 plus a profit. The dividend yield is currently around 4.2%, but a year ago it was around 5% – this is because share prices and dividend yields work in opposite directions.

In total, my £1,000 investment would be worth around £1,335. I actually doubled down on Barclays stock after the failure of Silicon Valley Bank. It didn’t pay off for quite some time, but now it looks like a pretty good call.

Emotions swing.

Barclays has been undervalued for some time, due to investors’ wariness of UK banks since the financial crisis. Despite Barclays returning profits in each of the past 15 years, the negativity hasn’t gone away… maybe just yet.

There could be several reasons for this. Banks have weathered the negative effects of high interest rates and slow economic growth well, and things are looking up. Net interest income has increased, and interest rates are set to settle in the so-called Goldilocks zone over the medium term.

This happens when interest rates rise — say 2.5-3.5% — but are not high enough to trigger many customer and business defaults. It also allows banks to leverage their hedges. Indeed, Barclays’ gross hedge income could be worth £6bn in 2025 alone – three times more than in 2022.

Another reason for the change in sentiment is related to the company’s strategic overhaul. The British bank’s three-year plan to support its share price includes a £10bn buyback program and a £2bn cost-cutting plan.

Still a value stock

Barclays is not expensive compared to its international peers. The stock trades at 6.9 times forward earnings. It’s incredibly cheap compared to its American counterparts. JP Morgan 12.4 at times and Bank of America In 11.8 hours.

Barclays is widely among UK peers – they are all quite cheap. Its price-to-earnings ratio is expected to fall to around 5.3 times in 2025 as earnings grow further. It is also trading at 0.55 times firm book value – another suggestion that the company is undervalued.

Understandably, we are now seeing analysts pointing investors towards UK and European stocks as the US market gets crowded.

I appreciate that Barclays has not had the best reputation with regulators in recent years, and its return on investment has lagged. This represents a risk. But it is good that the company does something positive to increase efficiency.

Management said it would allocate an additional £30bn of risk-weighted assets to its UK retail banking arm over the coming years as it seeks to fund the most successful parts of its business. This is sensible and hopefully will work.

Barclays is up, and I think it can go a long way.


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