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Barclays Stock: Throwing Caution to the Wind

Stock MarketsOct 12, 2021 03:31PM ET
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© Reuters. Barclays Stock: Throwing Caution to the Wind

Barclays (LON:BARC) (BCS) is a multinational financial services firm. The company is headquartered in the United Kingdom, but has operations globally.

I am Neutral on the stock. (See Analysts’ Top Stocks on TipRanks)

Performance & Risks

Barclays stock has risen more than 108% over the past year, predominantly driven by excess market liquidity, and optimism regarding its Trading segment.

The bank's reliance on its Trading segment is its largest risk. Barclays' trading revenue makes up almost 30% of its revenue mix, and investors generally assume that heavy reliance on trading revenue correlates to lower sustainability of earnings.

Furthermore, Barclays hasn't produced the most sustainable earnings in general over the past 10 years; as a matter of fact, total revenue has declined on more annual reporting occasions than it's increased.

The stock price hasn't hit a snag yet since the pandemic's rebound buy, and one might be overdue.

Overvalued

Judging the value of banking stocks can be tricky because as an investor you need to examine certain aspects such as quality of assets, capital adequacy, and liquidity.

Barclays has price-to-book and price-to-sales ratios that exceed its five-year averages by 32.1% and 27.5%, respectively. In addition, Barclays also has a return on equity 45.5% lower than the sector average, and investors may search for better value for money if this persists.

Why The Stock Might Rise

Financial sector stock prices tend to correlate with rising long-term government bond yields. Global interest rates are anticipated to rise in the coming years, and seeing as interest rates and bond yields are positively correlated, Barclays could benefit from a systemic value driver such as this.

When interest rates rise, the banks also tend to add to their credit/loan risk premium spreads, which translates into higher profit margins. Barclays generates approximately 37% of its revenue from the debt market, which could benefit the firm if interest rates rise as anticipated.

Wall Street, Hedge Funds, Final Word

According to the TipRanks rating charts, Wall Street thinks the stock is a Moderate Buy, while hedge fund capital flows remain neutral.

Many are waiting to see what happens with interest rates, and the stock market, as this will significantly affect Barclays' income statement.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

Barclays Stock: Throwing Caution to the Wind
 

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