Lloyds share price seems cheap: Here’s why I’d never buy it
- Lloyds stock price has pulled back by over 15% from its highest point this year.
- The company has a long track record of underperformance.
- It lacks no major organic growth catalyst.
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Lloyds (LON: LLOY) share price has been extremely ugly in the past few months. After soaring to a high of 52.68p in February, the stock has crashed by more than 15% from the highest level this year. In all, the shares have barely moved this year.
Lloyds Bank has been dead money
Copy link to sectionLloyds Bank, one of the most popular stocks in London, has been one of the biggest disappointments in the past decades. Looking at its long-term chart, we see that the stock has jumped by just 20% since 1996. At the current price, the shares are still about 76% below the highest level during the Global Financial Crisis in 2008.
Lloyds share price has plunged by more than 15.6% in the past five years while the FTSE 100 index has dropped by less than 1% in the same period. This means that an investment in Lloyds a few years ago would have lost you money, dividends included.
To be sure, historical performance is not always an indicator of future performance. However, in most periods, this performance can help you predict whether an asset price will do well in the future.
Most importantly, the company has no major catalysts that will push its revenues and profitability higher. The most recent results showed that the company’s net income jumped by 15% in Q1 to 4.6 billion pounds.
Broken into pieces, we see that this performance was due to net interest income whose income jumped by 20% to 3.5 billion pounds. As such, this income growth was mostly because of the actions of the Bank of England (BoE). Other income, which is not dependent on the BoE), jumped by just 6%.
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This is not to say that Lloyds is a bad bank. Far from it. It is one of the safest banks in Europe, thanks to its CET tier 1 ratio of 14.1%.
Lloyds share price forecast
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Technicals are also not supportive of the Lloyds stock price. As shown above, the shares formed a double-top pattern at 51.78p on the weekly chart. In price action analysis, this pattern is usually a bearish sign. Its neckline sits at 37.44p, which is about 16% below the current level. The stock has also plunged below the 50-week moving average.
Therefore, there is a likelihood that the shares will continue falling as sellers target the next key support level at 37.44p. The only time that it makes sense to buy Lloyds stock is when it moves above the upper part of the double-top pattern.
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