Lloyds‘ (LSE: LLOY) shares have had a great run over the last year, rising about 70%. But they’re still cheap on a price basis – currently they’re trading for around 105.5p, meaning that with £1,000 an investor could buy 947 shares (ignoring trading commissions).
Is investing in Lloyds today a smart move though? Let’s discuss.
The investment case for Lloyds today
A year ago, there was a clear case for investing in Lloyds. For a start, the company looked undervalued. At the time, the price-to-earnings (P/E) ratio was only about 8.5 while the price-to-book ratio (a ratio commonly used to value banks) was around 0.7. So there was some value on offer.
Secondly, there was a juicy dividend available. The yield was around 6%, meaning that the stock was a cash cow.
Today however, the case for Lloyds’ shares is less clear. After a 70% share price gain over the last year, a lot of the value has disappeared. At present, the shares trade on a forward-looking P/E ratio of 11. That’s a relatively high earnings multiple for this company.
Meanwhile, the price-to-book ratio’s now about 1.3. So investors are essentially paying a premium to the value of the bank’s net assets. As for the dividend yield, it’s fallen to around 4%. So there’s not nearly as much income on offer for investors.
The bank has momentum
Now, despite all this, the shares could still be worth considering. Because the bank has momentum at present.
Last week, it published its full-year results for 2025 and they were pretty good. For the year, Lloyds posted:
- Profit before tax of £6.7bn, up 12% year on year and ahead of analysts’ forecast of £6.4bn.
- Underlying profit of £6.8bn, up 7%.
- Underlying net interest income of £13.6bn, up 6%.
- Earnings per share of 7p versus 6.3p a year earlier.
- A 2026 return on tangible equity target of greater than 16%.
On the back of these results, the bank lifted its annual dividend to 3.65p share from 3.17p, an increase of 15%. It also announced a £1.75bn share buyback, bringing total capital returned to shareholders in 2025 to £3.9bn.
Investors were obviously impressed with the figures as Lloyds’ share price moved higher on the day of the results.
Better opportunities in the market right now?
Taking the current valuation and yield into account however, I don’t see Lloyds as one of the best UK stocks to consider buying today. In my view, the risk/reward proposition’s no longer so compelling.
The fragile UK economy continues to be a risk with this stock. Because, unlike other Footsie banks, Lloyds doesn’t have much geographic diversification. It also doesn’t have as many growth drivers as other banks. For example, it doesn’t have an investment banking unit or trading division.
So while the shares could keep rising, my view is that there are better UK stocks to consider buying for the long term today.
