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Lloyds‘ (LSE:LLOY) shares continue to rise in value, adding to the good fortunes they deliver in 2025. At 104.1p per share, the FTSE 100 the stock is up a staggering 45% in 12 months. That’s nearly double the broader index’s 23% increase.
To put that into context, an investor who bought 10,000 shares in the bank last year would have made a sweet profit of £3,234. The value of that number of shares is now worth £10,410, up from £7,176 12 months ago.
It doesn’t end there. And adding to the dividend of 3.33p per share, the investor would have enjoyed a total profit of £3,567 to mix in share price gains and income. The question is, can Lloyds’ share price continue to fluctuate? I’m not so sure…
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Like other UK-based banks, Lloyds faces many challenges (which I will get into shortly). The problem is that its recent impressive gains leave it with a price that, in my opinion, does not reflect this fact.
16 times, the bank’s trailing 12-month price-to-earnings (P/E) ratio remains above the 10-year average of 10-11. That’s also above the broader FTSE 100 average of 14.9.
Meanwhile, the company’s price-to-earnings multiple (P/B) is 1.5, above the long-term average of 0.9. That reading above 1 also shows Lloyds shares trading at a low balance sheet value.
Given the bank’s growing problems, these numbers may not limit further price gains. I fear it may cause a full backlash.
What are the risks?
Like retail banks around the world, Lloyds could be hit by rapidly shrinking ratings as central banks cut interest rates. But UK operators like these face specific local problems, such as a sluggish economy that could limit loan growth. In fact, due to unemployment and declining real wage growth, bank defaults may also increase.
Unlike businesses with exposure to emerging markets such as HSBC again SantanderBritish banks also have limited growth opportunities given the relative maturity of the UK market. In this case, do Lloyds shares deserve that huge valuation, currently the highest among banks on the London stock market? I’m not convinced.
When you add in the growing competitive pressure from rival banks, rising costs, and the possibility of heavy fines for previous car misbehavior, the risks seem significant.
Can Lloyds shares be bought?
So why might investors consider buying an FTSE 100 bank? Strong product strength, a recovering housing market, and continued digitization could boost earnings and help Lloyds’ share price rise. Moreover, the near-term forecasted profits are well covered by the expected profits alongside the company’s strong balance sheet. The annual yield to 2026 is 4.1%.
But on balance, I’m not tempted to add Lloyds shares to my portfolio. It may be attractive to risk-tolerant investors, but I think I’ve found some very attractive stocks to buy today.
