Barclays (LSE: BARC) shares are having a great run at the moment. Year to date, they’re up about 40%.
Looking ahead, there could be more share price gains to come. According to analysts at Deutsche Bank, the shares have the potential to deliver double-digit gains from here.
270p share price target
Recently, Deutsche Bank initiated coverage of Barclays shares. Listing the bank stock as a Buy, its analysts slapped a 270p price target on it.
That price target is roughly 24% higher than the current share price. If it turns out to be accurate, a £5,000 investment today could be worth £6,200 in the not-too-distant future.
I’ll point out that Barclays shares also pay a decent dividend. Currently, the yield is about 4%. Add this yield to the potential share price gains, and investors could be looking at a total return of nearly 30%.
Of course, neither the dividends nor share price gains are guaranteed. I’ve learnt over the years that brokers’ price targets can be off the mark at times.
Low valuation
Barclays shares do look cheap right now though.
Currently, they trade on a forward-looking price-to-earnings (P/E) ratio of just 6.9 – miles below the market average.
At current levels, the analysts at Deutsche Bank believe there’s considerable “risk asymmetry” in the company’s share price (that means they think the shares are more likely to go up than down).
Back in February, Barclays announced a new strategy in an effort to improve its business performance. And Deutsche’s analysts reckon that if the bank can get close to its targets, the share price should rise.
Meanwhile, they believe that the group’s tangible net asset value (which is expected to increase to 460p by end of 2026) should offer some protection from share price weakness.
My reservations
Now, while this all sounds great, I personally have a few reservations about buying the shares.
One is in relation to their cyclicality. Banking is a very up-and-down industry, and as a result, bank stocks can be volatile.
Barclays shares, for example, have a beta of 2.2. This means that for every 1% move in the UK stock market, they move roughly 2.2%.
Given that economic growth in the US – a country the bank has a lot of exposure to today – has softened lately, this risk can’t be ignored.
Another issue for me is their complexity. Banks tend to have very complex balance sheets and it’s often hard to properly understand the risks. This is one reason top fund manager Terry Smith typically avoids them.
A third concern for me is industry disruption from financial technology (FinTech) companies. As a long-term investor, I want to buy companies that will still be thriving in a decade’s time. Looking at how banking is being disrupted today by new digital players, I’m not fully confident in the long-term outlook for traditional banks like Barclays.
Should I buy?
Given my reservations, I won’t personally be buying Barclays shares in the near term.
They do look cheap. And they may keep rising.
However, in my view, there are better stocks to buy for my portfolio today.
