The FTSE 100 has risen 28% over the last five years. However, some companies have done much better than others. In fact, more than a third have seen their shares rise 100% or more.
The last five years
Barclays staggered through the financial crisis of 2008/9. Nevertheless, in contrast to Lloyds and Royal Bank of Scotland, Barclays survived without requiring a government bailout.
Yet, while taxpayer-supported Lloyds and RBS have seen their shares rise 35% and 2%, respectively, over the last five years, Barclays shares have fallen 24%.
The market is today valuing Barclays cheaper than Lloyds and RBS on two out of three value metrics shown in the table below.
|Recent share price||Price/tangible book value||Forecast P/E 2014||Forecast dividend yield 2014 (%)|
Barclays is rated more cheaply than its rivals on price/tangible book value and dividend yield. It is the most highly rated on current-year forecast P/E, but if we look on to 2015, it becomes the cheapest on that measure, too.
The poor performance of Barclays shares over the last five years and the current lowly valuation could provide a good springboard for future returns.
The next five years
One way to view share price changes over any given period is as a reflection of growth (or decline) in earnings per share (EPS) and any change in the P/E ratio.
Barclays could give investors a 100% price rise over the next five years if it doubled its current year forecast EPS of 21p to 42p for 2019 and maintained its P/E at 11.2.
The doubling of EPS would represent a five-year compound annual growth rate (CAGR) of just under 15%. Now, while thats quite a lick, analysts are forecasting an EPS rise of 29% for 2014-15 alone (21p-27p). If their forecast is on the money, the required CAGR for the subsequent four years would fall to under 12%.
Furthermore, in five years time 10 years after the financial crisis I reckon theres a good chance Barclays current P/E of 11.2 could have risen to closer to the long-term FTSE 100 average of 14.
If that were to be the case, EPS would not need to rise as high as 42p for investors to double their money: 33.7p would be sufficient to do the trick. The required five-year CAGR would then be less than 10%. And if Barclays were to hit the analysts 2014-15 forecast of 29% EPS growth, the CAGR for the subsequent four years would fall to just 5.7%.
On this basis, I think theres a decent chance you could double your money with Barclays over the next five years.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.