Lloyds Banking Group (LSE: LLOY) continues to plummet as macroeconomic and geopolitical worries have worsened. In just six weeks the Lloyds share price has lost a whopping 21% of its value.
Investors have heavily sold Lloyds on gobsmacking inflationary news in the UK and concerns over how the tragedy in Ukraine will play out. The LLOY share price has dropped to its cheapest since September 2021, below 43p. And more weakness could be around the corner as fears surrounding the macroeconomic and geopolitical situation mount.
Too cheap to miss?
That being said, could the Lloyds share price now be too cheap for me to miss? Okay, City analysts think earnings at the FTSE 100 bank will drop 16% year on year in 2022. But this means Lloyds trades on a forward price-to-earnings (P/E) ratio of 6.8 times. As a long-term investor, this sort of reading looks very attractive.
On top of this, Lloyds is expected to continue raising dividends in 2022 despite this predicted profits fall. And current estimates, combined with those recent share price falls mean the bank boasts a whopping 5.9% dividend yield. This beats the 3.6% forward average by a huge margin.
Rising rates
Of course buying any UK share involves the weighing up of potential risks versus possible rewards. And some may argue that the recent falls in Lloyds’ share price fairly reflects the rising threats to the British and global economies.
I certainly feel that there’s reason to be optimistic for the Black Horse Bank. The LLOY share price failed to ignite during the 2010s as rock-bottom interest rates harmed profits. It explains why Lloyds continues to trade at a huge discount to the 275p which it traded at just before the October 2007 stock market crash.
However, the profits Lloyds makes from its lending activities could finally be about to rebound as the Bank of England aggressively raises rates. Policymakers have hiked the benchmark rate twice in as many months to current levels of 0.5%. Right now the smart money seems to be on interest rates hitting 1.25% by the end of the year, the highest since 2009.
Dangers to Lloyds’ share price
Its critical to remember though that soaring inflation isn’t all good news to Lloyds and its peers. The impact of rocketing prices on the domestic economy could well offset the positive effect of higher interest rates. Indeed, the British Chambers of Commerce now expects economic growth to halve in 2022 as high inflation reigns. Economically-sensitive shares like banks could struggle badly in this environment.
I also worry for Lloyds as the competition from challenger banks like Monzo and Starling intensifies. These digital-led banks are leaving the established banks behind in terms of customer satisfaction. And they are also rapidly expanding their range of financial products to keep the likes of Lloyds on the back foot.
I won’t argue that the Lloyds share price looks ultra cheap. However, in my opinion this is because the bank faces colossal pressure to get back to its glory days. I think the LLOY share price could remain under pressure and would buy other cheap FTSE 100 shares instead.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
