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Barclays (LSE:BARC) shares have delivered impressive returns over the past year. Despite a difficult start to 2026, the FTSE 100 The bank has grown by a staggering 38% over the past year. That’s better than the broader index’s 22% increase.
To put that into context, someone who bought 1,001 shares in the company in the last 12 months would have seen the value of their investment rise to £4,310 from £3,114. With the dividend thrown in, they would have enjoyed a total return of 41%, or around £1,281.
The question is, can the Barclays share price continue its dramatic rise? I have my doubts…
Are Barclays shares worth it?
The problem – as is often the case with rising stocks – is that the bank now commands a higher valuation. Some stocks deserve a premium rating, for example, if they have good earnings potential.
This is not a category Barclays falls into, in my book. In fact, given the significant challenges it faces (more on this later), I believe its shares look overvalued.
At 410p per share, the bank’s price-to-book (P/B) ratio remains at 1.1. That’s not much at first glance. However, it is more than double Barclays’ 10-year average of 0.5. And with interest rates returning to more historic levels, this leaves the value of Barclays shares at risk, in my view.
What could go wrong?
You see, retail banks have struggled to grow profits following the 2008 financial crash. A long period of depressed interest rates fed into their net interest income (NIMs), which measure the difference between the interest they pay savers and what they charge borrowers.
Inflation increased following the Covid-19 pandemic, raising interest rates. But easing inflationary pressure has seen the Bank of England cut its lending rate, and is likely to cut further, as policymakers are also said to be taking steps to boost the ailing economy. This will drag banks’ already thin NIMs down (Barclays UK’s margin was 3.6% as of December), and closer to those of the 2010s when banks struggled to generate any meaningful growth.
The prospect of weak economic growth itself presents a major challenge for banks. Will they be able to generate enough loan growth to increase profitability? Could they also see a sharp increase in default costs if borrowers start defaulting on their payments?
Finally, high street owners have a tough task of increasing their income as rival banks grow stronger. These new age banks have low costs that allow them to offer attractive products. And many like Monzo are raising capital to strengthen their forays and expand into new product areas, increasing pressure on established banks.
Here’s what I do
I’m not saying Barclays is a lame duck. It has significant product strength, which can support earnings even if market conditions worsen or competition increases. The investment bank’s growth also leaves it in a better position than its high street rivals Lloyds.
But do the risks outweigh the potential benefits of buying Barclays shares? I think so, and especially at current prices. That’s why I’m looking for other FTSE 100 stocks to buy instead.
