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It has been a brilliant few years for shareholders in Lloyds (LSE: LLOY). The Lloyds share price has soared 148% over the past five years.
However, since the second half of May, the share has essentially been treading water.
Could this be a pause before the price growth continues – and if so, should I take advantage of it to add some of the shares to my ISA?
Looking to the long term
As a long-term investor, I tend not to pay much attention to short-term price movements when it comes to assessing the investment case for a share.
However, that does not mean I ignore them altogether. After all, sometimes a short-lived movement in a share price can offer a buying opportunity at an attractive valuation. A plateau in a rising share price may last for some time before it then starts moving again.
Over recent years, the Lloyds share price has done very well. From an even longer-term perspective, though, it has not. Neither the share price nor dividend per share has got anywhere close to where they were before the 2008 banking crisis.
Lloyds today is a different beast to what it was then, having learnt some valuable lessons from that crisis. But that long-term picture is a valuable reminder of some of the risks inherent in banking, such as a weakening economy driving up loan default rates and hurting bank profits.
Uncertain economic outlook
In fact, I think awareness of that risk might help explain why the Lloyds share price has been drifting in recent weeks. It is not alone in this regard – rival Natwest has seen share price growth of 278% over five years, but its share price has shown a decline over the past month or so.
For now, there are no clear and present alarm bells for the British economy. That matters a lot for Lloyds, as it is the UK’s largest mortgage lender.
Still, the mood music is giving me cause for concern. The global economic outlook is not only weak, it also seems fairly unstable due to an ongoing mix of sluggish demand, geopolitical risks, and tariff disputes. Last month saw UK property prices flatten as concerns about the job market grew.
No rush to buy
Despite such uncertainty, Lloyds continues to generate large profits. It has a proven model and trades under a portfolio of well-known brands.
If the economy does not deteriorate but gets better, its current valuation could turn out to offer decent value in the long term. The Lloyds share price-to-earnings ratio of 12 does not strike me as especially high.
However, I fear the share price might not just keep drifting but move sharply downwards if the UK economy – and especially the housing market – shows signs of weakening.
So for now, I will not be buying a single Lloyds share for my ISA.
