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The last five years have been phenomenally good for Barclays (LSE:BARC) and its share price. The British banking giant has seemingly reaped the rewards of the higher interest rate environment, sending earnings surging in the process. And management’s strategic shift towards fee-based income streams, paired with unlocking operational efficiencies, has only amplified the gains.
For shareholders, that’s translated into a phenomenal 180% return since July 2020. And that’s before counting the extra gains from dividends, which have also been getting hiked every year since. But with so much growth now under its belt, and the Bank of England steadily cutting rates, should investors still be considering this business? Or is now secretly the time to think about taking profits?
What’s on the horizon?
Looking at the consensus from institutional investors, things continue to look promising for the Barclays share price. The analyst team at Citigroup recently raised its projection to 350p, while JP Morgan is even more bullish with a price target of 410p.
These hikes come on the back of what’s been an impressive period of outperformance at the bank. Pre-tax profits have been climbing by double-digits, delivering a return on tangible equity of 14% ahead of industry averages.
This boost of profitability is also powering management’s plans to return £10bn to shareholders by 2026. And while its US operations have been a bit lacklustre of late, the impact of this has been more than offset by strong results in its British retail and investment banking arms.
Barclays isn’t the only bank stock to have outperformed in the last five years. But with limited exposure to the motor finance scandal, it’s emerging as a favourite among both institutional and retail investors. And while interest rate cuts do create a long-term headwind, its structural hedges are expected to keep its net interest margins elevated in the near-term.
That certainly suggests that buying Barclays shares could be a prudent move today, even after its impressive bull run. But even these optimistic analysts have identified several weak spots.
Taking a step back
While things might be looking rosy for now, Barclays has some prominent threats on the horizon. Disruptive fintech companies have begun encroaching on its market share with their own alternative banking and investing solutions. Barclays still controls the lion’s share of the market along with its peers. But continued innovation from more agile businesses could prove to be a significant challenge in the future.
In terms of more immediate threats, JP Morgan is particularly concerned about the impact of US tariffs. While it has recently revised down its probability of a global recession in the second half of 2025, it still stands at 40%. Such a slowdown in economic growth has countless knock-on effects for banking institutions across retail and corporate segments.
What to do?
Right now, the impact of tariffs remains unknown. But if they prove to be as disruptive as JP Morgan projects, the next couple of months could be a rough time for the Barclays share price. So investors with a low risk tolerance may want to review their position and make sure they’re comfortable.
Yet for investors willing to take on more risk, Barclays shares could present an interesting opportunity to consider, especially if market volatility creates an attractive opening. At least, that’s what I think.
