Earlier this yr, I made a decision to promote my holdings in Barclays (LSE:BARC). The inventory had jumped above 200p and had hit contemporary three-year highs. Nonetheless, since then the Barclays share price has saved on rallying. It’s now up 82% over the previous yr at 256p. So did I make a horrible investing determination?

My pondering on Barclays

First let’s run by way of why I made a decision to promote the inventory. I purchased it at first of the yr when it was essentially undervalued. The price-to-earnings (P/E) ratio was round 5, half of the benchmark determine of 10 that I exploit.

The financial institution was struggling and in want of a shake-up. This was addressed in Q1, with a cost-cutting train and a concentrate on the extra worthwhile areas of the corporate. Buyers took this transfer effectively and the share price jumped.

I used to be capable of see a excessive share acquire on my shares in just below a yr. But it reached the purpose the place I assumed that the scale of the transfer regarded just a little stretched. The P/E ratio jumped (it’s now just below 10), making me really feel the inventory is now pretty valued.

Additional, the Financial institution of England committee began to cut back rates of interest. This might seemingly put strain on the web curiosity margin for Barclays and cut back profitability into subsequent yr.

Lastly, I felt like there have been higher alternatives for my cash within the US, the place corporations had been catching my eye with higher progress prospects.

A continued rally

Since then, Barclays shares have saved rising. The share price is now on the highest stage since autumn 2015.

An element right here was the robust Q3 outcomes from late September. The enterprise impressed traders with increased than anticipated web curiosity earnings, defying the pondering that this may begin to fall. Additional, a good management of prices meant that revenue earlier than tax was £2.2bn, up from the £1.9bn from Q3 2023.

It’s true that the inventory may maintain going from right here. I believe we’d have to see inflation begin to rise once more, making the central financial institution maintain rates of interest increased for longer. Additional, if the UK economic system outperforms as a result of new finances, Barclays ought to really feel the profit from increased spending and transactional acitivity.

Though the P/E ratio is now near a good worth, this doesn’t imply the share price can’t enhance. The FTSE 100 P/E common ratio is 15.1. So there’s room for the ratio to extend extra earlier than it begins flashing overvalued.

The underside line

In fact, I want that I had made extra money on my Barclays funding. That’s human nature. Nonetheless, I caught to my technique of shopping for an undervalued inventory and promoting it after I thought it had returned to a good worth. From that perspective, I didn’t do something fallacious.