A giant of the retail and investment banking industry, Barclays (LSE:BARC) is listed on the FTSE 100 index. Despite recent and ongoing challenges, the firm has delivered consistent earnings over the past five years. I want to know if the current Barclays share price is a bargain and if I should add the business to my long-term portfolio. Let’s take a closer look.
Why the current Barclays share price may be cheap
Having studied the wider banking sector as a whole, I suspect that the current Barclays share price may be cheap. It currently trades at 144.94p, down 20.9% in the past year.
By referring to the price-to-earnings (P/E) ratios of Barclays and a major competitor, HSBC, I think the Barclays share price may be a bargain. It has trailing and forward P/E ratios of 3.8 and 6.28, while HSBC has P/E ratios of 11.14 and 9.63 respectively. This is an indicator that I may be getting a bargain if I buy now.
With interest rates rising to 0.75%, I think this could also benefit Barclays as it is able to charge more for its loan and mortgage products.
Financial results
Between 2017 and 2021, revenue increased from £21bn to £21.9bn, while profit before tax rose from £3.5bn to £8.4bn. This is especially strong when we consider that the bank slumped to a £3bn profit before tax in 2020, during the pandemic.
Unsurprisingly, earnings per share (EPS) grew from 3.5p to 37.5p. By my calculations, this means that Barclays has a compound annual EPS growth rate over the past five years of 60.7%. This is well above average. It should be noted, however, that past performance is not necessarily an indicator of future performance.
In its most recent results, the bank initiated a £1bn share buyback scheme. This is a good suggestion of a healthy company, because it is ultimately seeking to give money back to shareholders.
Furthermore, it paid a dividend of 4p per share last year. It is good to know that I could derive income from holding this cheap growth stock.
Challenges remain
Investment manager AJ Bell recently stated that Barclays is leading its sector because it has a “meaningful” investment banking segment and is thoroughly diversified.
On the other hand, Deutsche Bank downgraded the bank in December as it forecasts higher underlying costs.
JP Morgan also downgraded the firm last month, owing to a negative “shift in the UK economic outlook”.
While there do appear to be challenges ahead for Barclays, I fundamentally view these as short-term issues that could subside over a longer period.
Overall, the financial results underpinning Barclays are strong and indicate that purchasing shares is a good option for growth. While there are challenges ahead, the prospect of getting shares in this firm at a cheap price is very appealing. I will be buying shares soon.
