It's been a great evening session for Lloyds Banking investors, who saw their shares rise 2.6% to a price of $5.43 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
a Lower P/B Ratio Than Its Sector Average but Priced Beyond Its Margin of Safety:
Lloyds Banking Group plc, together with its subsidiaries, provides a range of banking and financial products and services for retail and commercial customers in the United Kingdom. The company belongs to the Finance sector, which has an average price to earnings (P/E) ratio of 15.92 and an average price to book (P/B) ratio of 1.78. In contrast, Lloyds Banking has a trailing 12 month P/E ratio of 13.2 and a P/B ratio of 1.41.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. Lloyds Banking's PEG ratio is 1.05, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
Exceptional EPS Growth but Negative Cash Flows:
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $19,216 | $22,295 | $17,876 | $6,647 | $20,510 | $34,281 |
| Interest Income (M) | $2,921 | -$3,557 | $1,721 | $3,331 | $8,503 | $19,011 |
| Operating Margins | 15% | 6% | 7% | 19% | 8% | 6% |
| Net Margins | 4% | 6% | 11% | 22% | 13% | 13% |
| Net Income (M) | $781 | $1,368 | $2,020 | $1,476 | $2,654 | $4,477 |
| Depreciation & Amort. (M) | $1,358 | $1,334 | $1,582 | $1,186 | $1,572 | $3,426 |
| Diluted Shares (M) | 70,466 | 71,252 | 71,366 | 67,631 | 63,913 | 60,913 |
| Earnings Per Share | $0.01 | $0.02 | $0.02 | $0.02 | $0.04 | $0.06 |
| EPS Growth | n/a | 100.0% | 0.0% | 0.0% | 100.0% | 50.0% |
| Free Cash Flow (M) | -$431 | -$1,005 | -$101 | $9,961 | -$7,994 | -$4,393 |
| Total Debt (M) | $97,689 | $87,397 | $71,552 | $73,819 | $75,592 | $70,834 |
| Net Debt / EBITDA | 8.95 | 3.36 | -2.77 | -8.94 | -4.14 | 0.0 |
