Barclays (LSE: BARC) shares have seemed critically undervalued to me for fairly a number of years. The previous 12 months have lastly seen some large motion, with the share price up 92%.

What meaning is a £20,000 funding in Barclays shares a yr in the past can be price £38,400 as we speak. Add roughly £1,090 in dividends, and we’d be only a shade wanting doubling.

The climb has lower the forecast dividend yield to simply 2.8%. However even with that, I nonetheless suppose the Barclays share price seems low cost. And it appears Metropolis analysts agree, with a giant majority Purchase consensus on the market.

Nonetheless too low cost?

There’s a mean share price goal on Barclays of 316p, which is 9% forward of the 290p price as I write. Some may not see so nice a possible there, particularly because the goal vary stretches from 230p to 375p. Which means a minimum of somebody on the market expects Barclays shares to fall.

However taking a look at forecast valuations, I can see loads of scope for additional potential beneficial properties. Does an anticipated price-to-earnings (P/E) ratio of 8.5 sound low? It does to me, even earlier than I try earnings forecasts for the following two years. They might drop the P/E to not a lot above six by 2026.

The important thing weak point of Barclays, in comparison with different FTSE 100 banks, seems to be that low dividend yield. It could be tempting to go for Lloyds Banking Group as an alternative, for its 4.7% yield. However Barclays is considerably extra various, and continues to be large in worldwide corprorate banking.

Bear in mind when different banks dropped that enterprise like a sizzling potato within the wake of the monetary crash? As a result of Barclays didn’t, it may very well be in for a lift from the anticipated rest of banking rules within the US. I’m cautious myself, as a result of if there’s one factor that banks by no means appear to do it’s study from their errors. There’s received to be a threat that the drive for short-term income might ship banks speeding headlong into the following disaster.

What subsequent?

Barclays plans to return a minimum of £10bn to shareholders between 2024 and 2026, prefering share buybacks to dividends. At Q3 time, Barclays stated it goals “to maintain whole dividend secure at 2023 degree in absolute phrases, with progressive dividend per share progress pushed via share depend discount because of elevated share buybacks.“

What do most long-term traders do with dividends? Purchase extra shares, proper? Barclays’ method ought to assist hold buying and selling prices down.

What may £20,000 invested in Barclays as we speak flip into in 12 months from now? I don’t count on one other near-doubling. And I’d by no means put money into the hope of constructing fast beneficial properties.

For these with a long-term view, Barclays does face threat from falling rates of interest. Cuts have slowed within the UK and are on maintain for now within the US. However when charges come down extra, financial institution margins ought to drop and put strain on income. Nonetheless, if I didn’t already personal some financial institution shares, I’d be contemplating Barclays as we speak and suppose different traders may do effectively to do additional research.