Lloyds share price is languishing at historic lows; is it a bargain or a trap?

Lloyds bank

Lloyds share price is in trouble. The shares are trading at 30.73p, which is lower than the June high of 38.05 high. It is among the worst-performers in the FTSE 100. They are also down by more than 52% this year. This performance is weaker than the RBS, Barclays, and HSBC share prices that have fallen by 50%, 38%, and 36% respectively. So, is Lloyds stock price a buy at these levels?

Lloyds vs banks
Lloyds stock price vs peer banks

Why Lloyds share price has underperformed

For starters, Lloyds is among the biggest banks in the United Kingdom. It competes with other banks, including Barclays, HSBC, and RBS. There are two main facts that separate the bank with other larger banks. First, unlike Barclays and HSBC, Lloyds does not have a lot of exposure in the trading business (FICC). In FICC, these banks trade fixed income, currencies, and commodities, which tends to be a good cash earner during times of increased volatility.

Second, Lloyds does not have a lot of overseas exposure. Therefore, its revenue and growth tends to depend on the UK economy. Other banks have a substantial business abroad. For example, while HSBC is a big bank in the UK, more than two-thirds of its revenue comes from Hong Kong. Barclays, on the other hand, has a big Barclaycard business in the UK but it also have a lot of exposure internationally. It is well-known as a big issuer of debt.

Therefore, this explains why Lloyds stock price has lagged other banks. The same is true with RBS, which is relatively similar with Lloyds.

Is Lloyds share price a buy?

At the current level, no one can argue that Lloyds share price is expensive. Indeed, looking at the multiples, you see that the bank is trading at its cheapest multiples in years. And, most analysts have a buy rating on the high street bank. According to Yahoo Finance, 12 analysts have a buy rating while 4 of them have a strong buy rating.

The performance will depend on several things. First, investors will be watching the second quarter update that will come out on July 30th. This update will tell us how the firm performed in a quarter when most people were staying at home. Most importantly, we will be watching the provisions. In the first quarter, it made a profit before tax of £404 million. That was lower than the first quarter of 2019, when the bank made £1.42 billion. That was mostly because of provisions, which was more than £1.3 billion. I expect that the firm will take more charges because of the weak economy.

Lloyds share price will also depend on stimulus, Brexit, and the actions of the new CEO.

Lloyds stock price analysis

Lloyds share price is having the worst day since July 3. On the daily chart, the stock is trading below the 50-day and 100-day exponential moving averages. It is also three points below the multi-year low of 27p. Meanwhile, the stock is below the 50-day and 100-day exponential moving averages. Also, the RSI has been falling, and is currently at the lowest level since May this year. This means that the Lloyds stock price may continue falling as bears attempt to move below 27p.

On the other hand, a move above the 100-day EMA at 36.00p will invalidate this trend.

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Lloyds stock price forecast

Lloyds share price

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