Like many of its peers,Barclays(LSE: BARC) (NYSE: BCS.US) is still trying to recover from the financial crisis. And the full scale of the banks recovery, or lack of, can be seen in Barclays share price.
For example, Barclays shares hit an all-time high of 790p during 2007, only a few weeks before the financial crisis really started to hit the banking industry. Around eight years later, Barclays shares are still 67% below their all-time high.
Nonetheless, in many ways Barclays is stronger today than it was before the credit crisis began but there is still plenty of work to be done.
The question is, can the bank ever return to its pre-crisis glory?
Falling returns
Back in 2006, Barclays profits hit record levels as the bank profited from its recent acquisition of South African lender, Absa, and consumer credit demand continued to surge.
Barclays return on equity a key measure of bank profitability hit a staggering 24.7% for 2006, which helped the group report earnings per share of 66.8p for the year, a figure thathelped to drive Barclays share price to its all-time high.
However, since 2007 a lot has changed and Barclays is no longer the bank that it once was.For example, Barclays return on equity has averaged a measly 4.5% per annum for the past two years.
That being said,the banks management are targeting a return on equity of 12% in the medium term a huge improvement on the 5.1% reported for last year. However, Id argue thata low-teens return is unlikely to be enough to drive the banks share price back to where it was before the financial crisis.
But this doesnt mean that Barclays is a bad investment: the bank has plenty going for it. While Barclays may not return to 790p any time soon, theres scope for the shares to double from current levels if the bank continues to cut costs and boost sales in line with City estimates.
City growth targets
City analysts expect Barclays earnings per share to rise by a staggering 70%, to 29.4p by 2016. On this basis, the group is currently trading at a 2016 P/E of 8.5, far below the banking sector average of around 19.
Moreover, if Barclays meets these lofty targets for growth, the market should re-rate the banks shares, giving them the growth multiple they deserve. Even a modest growth multiple of 14 times earnings would see Barclays shares rise to 411p by 2016.
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Rupert Hargreaves 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.