Barclays (LSE:BARC) Stock Looks Reasonable On Earnings But Cheap On Fair

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After a very strong 278.0% return over the past three years, Barclays now presents an interesting valuation puzzle. The Excess Returns intrinsic value estimate points to the shares trading at a steep discount of about 48.4%, while traditional earnings based multiples look closer to about right for the current price of £4.95.

• Barclays has delivered a 278.0% return over three years. This puts extra focus on whether the recent share price better reflects the underlying value or still leaves room for further gains.

• The ongoing share buyback programme, which continues to reduce the share count, may support intrinsic value per share. However, any shift in investor confidence around the bank’s capital return capacity remains a key risk to that valuation.

• Across Simply Wall St’s broader checks, Barclays screens as attractively priced in most areas, with a high value score of 5 out of 6. This suggests the shares lean cheap on several standard measures.

The issue now is whether Barclays’ current price already reflects this combination of strong historic returns and a seemingly supportive intrinsic value estimate, or if the stock still trades at a meaningful discount.

Find out why Barclays’ 34.6% return over the last year is lagging behind its peers.

Is Barclays Still Cheap on Excess Returns?

The Excess Returns model looks at how much profit Barclays can earn on its equity above the return that shareholders require. On this view, the key inputs are the current Book Value of £4.87 per share and a Stable Book Value of £5.66 per share, alongside a Stable EPS of £0.67 per share that is based on weighted Return on Equity estimates from 12 analysts. The model applies a Cost of Equity of £0.48 per share and an Excess Return of £0.19 per share, with an average Return on Equity of 11.82%.

Feeding these assumptions into the Excess Returns framework produces an intrinsic value estimate of about £9.61 per share, compared with the current share price of £4.95. On this methodology, that difference indicates the stock is 48.4% undervalued. Because Barclays is actively shrinking its share count through the ongoing buyback programme, the model’s view of value per share can remain supported even if overall profit stays flat.

On the Excess Returns view, Barclays stock currently screens as clearly undervalued relative to its estimated intrinsic worth.

Our Excess Returns analysis suggests Barclays is undervalued by 48.4%. Track this in your watchlist or portfolio, or discover 9 more high quality undervalued stocks.