I am Neutral on the stock. (See Analysts’ Top Stocks on TipRanks)
Performance & Risks
Barclays stock has risen more than 108% over the past year, predominantly driven by excess market liquidity, and optimism regarding its Trading segment.
The bank’s reliance on its Trading segment is its largest risk. Barclays’ trading revenue makes up almost 30% of its revenue mix, and investors generally assume that heavy reliance on trading revenue correlates to lower sustainability of earnings.
Furthermore, Barclays hasn’t produced the most sustainable earnings in general over the past 10 years; as a matter of fact, total revenue has declined on more annual reporting occasions than it’s increased.
The stock price hasn’t hit a snag yet since the pandemic’s rebound buy, and one might be overdue.
Judging the value of banking stocks can be tricky because as an investor you need to examine certain aspects such as quality of assets, capital adequacy, and liquidity.
Barclays has price-to-book and price-to-sales ratios that exceed its five-year averages by 32.1% and 27.5%, respectively. In addition, Barclays also has a return on equity 45.5% lower than the sector average, and investors may search for better value for money if this persists.
Why The Stock Might Rise
Financial sector stock prices tend to correlate with rising long-term government bond yields. Global interest rates are anticipated to rise in the coming years, and seeing as interest rates and bond yields are positively correlated, Barclays could benefit from a systemic value driver such as this.
When interest rates rise, the banks also tend to add to their credit/loan risk premium spreads, which translates into higher profit margins. Barclays generates approximately 37% of its revenue from the debt market, which could benefit the firm if interest rates rise as anticipated.
Wall Street, Hedge Funds, Final Word
According to the TipRanks rating charts, Wall Street thinks the stock is a Moderate Buy, while hedge fund capital flows remain neutral.
Many are waiting to see what happens with interest rates, and the stock market, as this will significantly affect Barclays’ income statement.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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