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Barclays (LSE:BARC) shares have delivered gorgeous returns over the past 12 months. Regardless of a troublesome begin to 2026, the FTSE 100 financial institution’s risen a formidable 38% in worth over the past 12 months. That is much better than the broader index’s 22% improve.
To place that into context, somebody who purchased 1,001 shares within the firm 12 months in the past would have seen the worth of their funding soar to £4,310 from £3,114. With dividends thrown in, they’d have loved a complete return of 41%, or round £1,281.
The query is, can Barclays’ share worth proceed its heroic rise? I’ve my doubts…
Are Barclays shares costly?
The issue — as is commonly the case with shares that surge in worth — is that the financial institution now instructions a sky-high valuation. Some shares are deserving of a premium ranking, as an illustration, if they’ve spectacular earnings potential.
This isn’t a class Barclays falls into, in my e-book. Actually, given the big challenges it faces (extra on this later), I imagine its shares look dangerously overvalued.
At 410p per share, the financial institution’s price-to-book (P/B) ratio sits at 1.1. That’s hardly monumental at first look. Nevertheless, it’s greater than double Barclays’ 10-year common of 0.5. And as rates of interest fall again in the direction of extra historic ranges, this leaves Barclays’ share worth in peril, for my part.
What may go improper?
You see, retail banks struggled to develop income following the 2008 monetary crash. A protracted interval of depressed rates of interest whacked their web curiosity margins (NIMs), which measures the distinction between the curiosity they pay savers and what they cost debtors.
Inflation spiked following the Covid-19 pandemic, driving rates of interest increased. However easing inflationary pressures has seen the Financial institution of England slash its lending benchmark, and additional cuts are possible, with policymakers additionally tipped to behave to stimulate the flagging economic system. This may pull the banks’ already-wafer-thin NIMs nonetheless decrease (Barclays UK’s margin was 3.6% as of December), and nearer to these of the 2010s when banks struggled to generate any significant development.
The prospect of weak financial development by itself presents a significant problem to banks. Will they be capable to generate adequate mortgage development to extend income? May additionally they see a pointy rise in impairment fees if debtors start to default on their funds?
Lastly, the standard excessive road operators have a troublesome process to develop earnings as challenger banks develop in affect. These new-age banks have decrease prices that enable them to supply extra engaging merchandise. And lots of like Monzo are elevating capital to accentuate their assaults and increase into new product areas, rising the stress on established banks.
Right here’s what I’m doing
I’m not saying Barclays is a lame duck. It has important model energy, which might help earnings even when market circumstances worsen or the competitors will increase. A sprawling funding financial institution additionally leaves it in a greater place than excessive road rivals like Lloyds.
However do the dangers outweigh the potential advantages of shopping for Barclays shares? I feel so, and particularly at present costs. It’s why I’m on the lookout for different FTSE 100 shares to purchase as a substitute.
