Why Barclays Is A Screaming Value Buy

But haven't people been saying that for years?

Everyone loves a classic value stock pick. Earlier this week, we focused on whether Nvidia shares were overvalued and concluded that they weren’t. To round out the trading week, we want to go to the other end of the scale and muse over whether Barclays shares are undervalued.

Painting the picture so far

The Barclays share price is down 11% over the past year and 26.5% over the past two. It’s yet to trade back to the pre-pandemic highs, with a few factors over the past year hindering things.

For example, late 2022/early 2023 saw the headache of a structured notes blunder in the US, whereby the bank exceeded the issuance amount it was allowed to under its US shelf registration. This ended up costing around £1b to fix.

Late last year, and as an ongoing story this year, there was a sharp reduction in headcount at the bank. Below shows the last headcount cutback in 2016. Since then, it has remained fairly steady. Yet news of a 5,000 global workforce cut will represent a good number of the 83,928 current employees.

Finally, the stock fell on Q3 ‘23 earnings when the bank revised the net interest margin (NIM) to 3.05-3.10%, down from earlier guidance of 3.15-3.20%.

This might only seem like a small tweak, but billions of revenue is accounted for under net interest income, so this does account for a sizeable exposure gap in profits.

Qatar silently dips out

Last month, the FT broke ground first that Qatar Holding (a subsidiary of the Qatar Investment Authority) was selling down its stake in the firm worth about £510m.

This reduced its stake from 5.3% to 2.9%. Having previously been the bank's second largest shareholder, this move undoubtedly hurt senior management at Barclays.

But despite all this doom and gloom, there are many reasons to like the stock. And as the quote goes from a certain Mr Warren Buffett… “be greedy when others are fearful”.

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Key stats about the stock

Earnings per share ratio: 4.9 (vs theoretical fair value of 10)

Trailing earnings per share ratio: 4.3 (vs theoretical fair value of 10)

Trades at 0.4x book value (vs theoretical target of 1)

Dividend yield: 5.01% (vs FTSE 100 average 3.80%)

From these key metrics (particularly price to book), Barclays looks like a strong value purchase right now. Take a look at this visualisation versus banking peers around the world, put together by the FT:

Even with time needed before the stock realises its full potential, the 5%+ dividend yield is more than generous enough to sit on during the waiting period. Let’s move on to what the analysts are saying…