Shares in Barclays (LSE: BARC) have plunged in value over the past few weeks. Investors have been selling the Barclays share price amid the broader market sell-off, fearing a full-blown financial crisis is in the works.
However, it looks as if these concerns are overblown at this stage. As a result, now could be a great time to snap up a share in this international lender at a bargain price.
Central banks take action
The Covid-19 pandemic has put an unprecedented level of strain on the global economy and financial system. The good news is, central banks have acted quickly to contain the fallout.
Central banks around the world have unlocked trillions of dollars of funding and liquidity to make sure the financial system holds together in these tough times. So far, these actions seem to be working.
This is good news for the Barclays share price. Reduced interest rates and more liquidity will make it easier for the bank to borrow and lend. That should help it weather the current storm and make a healthy recovery.
Barclays share price valuation
The actions by central banks suggest the recent Barclays share price slump is a bit excessive. After the recent declines, the stock is trading at just 25% of tangible book value.
For some comparison, in the financial crisis the Barclays share price fell to a low around 10% on tangible book value. So Barclays is nearly as cheap as it was back in 2009, even though the risks facing the group are much lower.
These numbers infer that while the Barclays share price could fall much further from current levels, the stock offers a wide margin of safety at current levels. If the stock returns to tangible book value, investors could see an upside of 300%.
The cheapest stock
That’s why Barclays stands out as one of the cheapest shares in the FTSE 100 right now. There are no other companies that offer more value on a price-to-tangible-book (P/TB) basis. The stock’s 0.25 multiple is the cheapest in the index. The Barclays share price is also cheaper than many of its UK peers, such as Lloyds and RBS.
Shares in these two companies are dealing at a P/TB ratio of 0.6 and 0.4 respectively. Barclays’ ratio is just 0.25.
While it’s unlikely any of these lenders will escape unscathed from the outbreak, they’re still in a far better position today than they were in 2008/09. That suggests now would be a great time to take advantage of the market’s short-term thinking and buy the Barclays share price.
The lender might suffer some further turbulence in the short term. But over the long run, Barclays will continue to hold its position at the top of the UK banking industry. Its transatlantic presence also gives the group an edge over other lenders here in the UK. That deserves a premium, not a discount, to the rest of the sector.