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On the first trading day of February, £1,000 bought about 900 shares in it Lloyds (LSE: LLOY). Today however, that same £1,000 buys 1,013 shares (ignoring trading commissions) as the bank’s share price has fallen sharply over the past month or so.
Is this an investment opportunity worth considering? Let’s talk.
Good performance in 2025
Lloyds’ latest results (for 2025) were impressive. During the year, the bank generated:
- Profit before tax of £6.7bn, up 12% year on year.
- Underlying profit of £6.8bn, up 7%.
- Earnings per share of 7p compared with 6.3pa last year.
After this strong performance, the bank increased its dividend by 15%. It also announced a £1.75bn share buyback.
Overall, there was a lot to like. Accordingly, the price went up after the report.
New dangers have emerged
However, since these results were posted in late January, a few things have changed.
First, the Iran conflict has created some economic uncertainty. As oil prices rise sharply, the economy is likely to slow down (an increase in oil prices is like more taxes on businesses and households).
If we see inflation, banks like Lloyds may be adversely affected. That’s because loan growth is likely to stagnate.
Another issue that has come up is the possible shutdown of AI-related work. Recently, many companies have laid off workers due to AI automation and this trend looks set to continue (and perhaps accelerate).
This could have a significant impact on Lloyds’ mortgage book. If unemployment were to reach 10%, for example, mortgage defaults would likely increase.
Another thing to think about is that many investors piled into Lloyds shares when they were trading above £1 at the start of the year. These people are living at a loss.
They may be tempted to sell when/if they break. This may moderate the stock price and put pressure on the trend.
An opportunity?
Now, there are still reasons to be bullish on Lloyds, of course.
Recently, the bank said it plans to sell customer data (anonymously). Its mission is to be the largest UK FinTech company.
It also said it plans to cut its technology costs by 35%. Note that AI can help reduce costs – it may be able to automate many of the bank’s tasks and reduce its staff costs.
In terms of valuation, assuming earnings are not compromised by any of the risks mentioned above and assuming consensus earnings of 9.93p per share for 2026, the shares trade at a price-to-earnings (P/E) ratio of less than 10. So, they don’t look expensive.
Turning to the dividend, analysts expect a payout of 4.24p in 2026. That equates to a yield of about 4.5%.
If you weigh all this, the stock may be worth a look right now. However, in my opinion, there are some safe stocks to consider buying today.
