Barclays’ (LSE: BARC) share price has fallen 7% from its 3 March 12-month traded excessive of £3.15.

This has been triggered primarily by two key elements, for my part. The primary was the decline in UK rates of interest, which is broadly unfavorable for banks’ web curiosity earnings (NII). That is cash constructed from the completely different charges charged and loans and paid on deposits.

The second was the heightened threat of a US-led international recession following the imposition of tariffs on 2 April. Banks typically replicate the financial well being of the nations through which they function, each via personal and enterprise accounts.

As a longtime personal investor, I look previous shorter-term elements driving markets. As a substitute I give attention to the prospects for shares over the long run. Aged over 50 now, this time horizon has decreased from the 30 years it as soon as was. However it nonetheless permits me to focus on inventory fundamentals reasonably than market noise.

So, ought to I purchase Barclays for the long run?

Is the enterprise strong?

A threat for Barclays would emerge if rates of interest in its key markets stored falling and remained low for a few years. One other could be a permanent international monetary disaster like that which started in 2007. Each may harm the financial institution’s earnings streams and capital base over time.

Nevertheless, analysts forecast that Barclays’ earnings will improve 8.9% to end-2027. It’s development right here that drives any agency’s share price and dividend in the long run.

A constructive for me on the interest-rate issue is that the financial institution has shifted to a fee-based earnings mannequin reasonably than an interest-based one.

In 2024 its earnings elevated 6% yr on yr to £26.788bn whereas its revenue earlier than tax jumped 24% to £8.108bn. Its fee-based earnings from funding banking climbed 7% to £11.805bn. And fee-based earnings from personal banking and wealth administration elevated 8% to £1.309bn.

On the recession issue, the common size of a US-led downturn since 1945 is round 10 months, in response to the Nationwide Bureau of Financial Analysis.

Are the shares undervalued?

Barclays’ 7.9 price-to-earnings ratio is backside of its peer group, which averages 9.5. These banks embody HSBC at 8.6, NatWest at 8.7, Customary Chartered at 9.5, and Lloyds at 11.2.

It’s also the laggard on the price-to-book ratio at 0.6 in comparison with a competitor common of 0.9. And the identical applies to its 1.6 price-to-sales ratio towards a 2.4 common for its friends.

I ran a reduced money circulate (DCF) analysis to place these numbers into share price phrases. Utilizing different analysts’ figures and my very own, the Barclays’ DCF exhibits it’s 63% undervalued at its present £2.79 price.

Due to this fact, the truthful worth for the shares is £7.54, though market unpredictability may transfer them decrease or increased.

Is now the correct time for me to purchase?

I’m on the latter a part of my funding cycle and am centered on shares that pay very excessive yields. I intend to more and more reside off the earnings from these whereas lowering my working commitments.

Barclays’ yield is simply 2.9% which is beneath the minimal 7% I would like, so I cannot purchase the inventory.

Nevertheless, if I had been even 10 years youthful and never centered on high-yield shares then I might purchase it for its robust earnings prospects and imagine buyers ought to think about it.