Stock market

Lloyds share price up 20% in 3 months! How high can it go?

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Lloyd’s‘ (LSE: LLOY) share price is currently on a tear. Three months ago, shares in the UK bank were trading around 46p. However, today they are changing hands for around 55p – around 20% more.

Wondering how high shares can go? Here are my thoughts.

60p on the horizon?

Let me start by saying that predicting future share prices is notoriously difficult. In the short term, anything can happen.

That said, Lloyds’ share price is still clearly trending upwards. And trends can stay in place for a while.

So, I wouldn’t be surprised to see Lloyds shares heading towards the 60p mark in the short term.

It is worth noting here that the broker’s average price target for Lloyds shares is currently 59.6p.

I think the price might be achievable. The stock may even breach this level.

A thorough evaluation

However, in the near term, I don’t believe the shares can climb much above the 60p level.

One reason I say this is assessment.

At 60p, Lloyds would trade on a forward-looking price-to-earnings (P/E) ratio of around 9.4. In my mind, that’s a pretty thorough assessment.

To be sure, those earnings are well below multiple market averages (the average P/E ratio in the FTSE 100 is currently around 14.4). But banks have lower P/E ratio.

Take America. JP Morgan (which is widely regarded as one of the best banking organizations in the world), for example.

It has a P/E ratio of just 12, despite the fact that its long-term track record when it comes to generating shareholder wealth (unlike Lloyds) is incredible.

I will point out here that JP Morgan is expected to grow its earnings by 4% this year while Lloyds is expected to register a growth of -16%.

Medium term perspective

Looking further though, Lloyds shares could potentially be overvalued. Currently, analysts expect the bank’s earnings to grow 16% to 7.46p in 2025.

If it looks like that kind of earnings growth can be achieved, the shares may continue to rise.

Risks to share price

Of course, there is no guarantee that Lloyds shares will continue to climb at all.

Some bad news regarding the UK economy, property market, or consumers could cause a stir. In contrast to HSBC And BarclaysLloyds does not have a lot of international diversification.

Another factor that could send the price back down is the Financial Conduct Authority’s (FCA) investigation into motor finance mis-selling. Lloyds has earmarked £450m for this. However, some analysts believe the costs could be too high. But the analyst RBCFor example, has said that Lloyds could see a hit of up to £3.5bn.

Best shares to buy today?

Given that I think the 60p mark could be a barrier for Lloyds shares, I would not buy them for my portfolio.

All things considered, I think there are better opportunities for my money in the stock market right now.

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