Barclays’ (LSE: BARC) share price is close to its 21 Could one-year excessive of £3.31. Any break above that might see it hit ranges not reached since 22 Could 2013 when it dealt at £3.38 earlier than shifting decrease.

I feel the important thing factor to this surge in current months has been a sequence of sturdy outcomes. These resulted from a well-executed change from an interest-based banking mannequin to a fee-based one.

Some buyers might shirk on the notion of shopping for a inventory that has risen a lot already. Others might really feel compelled to leap on what they see as unstoppable bullish momentum and purchase the shares.

Neither strategy is in helpful for making huge, sustained beneficial properties over time, in my expertise. This consists of a number of years as a senior funding financial institution dealer and over three many years as a personal investor.

I’m solely involved with whether or not there’s any worth left in a inventory and what the enterprise’s earnings progress potential is.

Earnings progress prospects

Analysts forecast that Barclays’ earnings will improve by 7.2% a 12 months to the top of 2027.

A threat right here is declines in rates of interest in its key markets, as these may cut back its web curiosity earnings. That is the revenue from the rate of interest distinction between loans and deposits.

Nevertheless, Barclays’ change to fee-based earnings reasonably than NII has served it effectively thus far. In 2024 its earnings grew 6% 12 months on 12 months to £26.788bn and its revenue earlier than tax leapt 24% to £8.108bn.

Its fee-based earnings from funding banking climbed 7% to £11.805bn. And fee-based earnings from non-public banking and wealth administration elevated 8% to £1.309bn.

In Q1 this 12 months, earnings was up 11% 12 months on 12 months to £7.7bn, whereas revenue earlier than tax elevated 17% to £2.7bn.

Earnings from funding banking over the quarter rose 16% to £3.873bn. Non-public banking and wealth administration earnings jumped 12% to £349m.

Share valuation

Barclays’ 8.2 price-to-earnings ratio is backside of its peer group, which averages 10.3. These banks are NatWest at 8.8, Customary Chartered at 9.8, HSBC at 10.4, and Lloyds at 12.

So, Barclays appears very undervalued on this measure.

The identical is true of its 0.6 price-to-book ratio — once more backside of its competitor group, with a 0.9 common.

And it is usually very undervalued on its 1.9 price-to-sales ratio in comparison with the two.7 common of its friends. And as soon as extra it’s backside of the group right here as effectively.

I ran a reduced money circulate analysis to place these valuations right into a share price context. Utilizing different analysts’ figures and my very own, this reveals Barclays shares are 55% undervalued at their current price of £3.27.

Due to this fact, their ‘fair value’ is £7.27. Consequently, it appears to be like to me just like the financial institution’s share price rally might have a great distance left to run.

Will I purchase the shares?

I concentrate on shares that generate a excessive dividend yield (7%+) so I can maintain decreasing my working commitments. Barclays at present yields 2.6%, so they aren’t for me.

Nevertheless, its sturdy earnings progress prospects ought to drive the share price (and dividends) greater over time.

Due to this fact, I feel it’s effectively value buyers contemplating if it fits their total portfolio goals.