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The Lloyds (LSE: LLOY) share price has been on a tear in 2025, rising almost 40% year to date. That performance outpaces all other major UK banks, putting it firmly in the spotlight among FTSE 100 financials.
But while the share price tells a bullish story, a closer look under the bonnet reveals a business that might not be quite as robust as its stock market rally suggests.
Profitability and valuation falling behind
When stacked up against its peers, Lloyds looks surprisingly average on some key metrics. Its net margin of 15.7% trails both Barclays and NatWest, suggesting it’s less effective at turning revenue into bottom-line profit. Likewise, its return on equity (ROE) sits at only 8.7% — well below the double-digit levels investors typically like to see in major banks.
Even its valuation isn’t especially cheap anymore. Lloyds trades on a forward price-to-earnings (P/E) ratio of 10.2. That’s higher than most other large UK banks, including Barclays and NatWest, which could imply that the recent surge in the Lloyds share price has already baked in much of the expected growth.
Adding to the picture, revenue growth’s slipped into the red at -4.18%, even as rivals continue to expand at a modest pace.
Dividends remain the key attraction
Where Lloyds still shines though, is income. The bank offers a dividend yield of 4.2%, comfortably covered by earnings. Dividends have been growing for four years in a row, climbing an impressive 15% year on year, second only to HSBC in the UK banking space.
Looking ahead, analysts expect earnings per share (EPS) to jump 30% over the next 12 months to around 10p per share. Revenue’s also forecast to exceed £20bn by 2026. Meanwhile, the average 12-month price target sits at 82.5p – about 9% above where the shares trade today.
Forecasts are mixed however, ranging from the most bearish calls for a 7.5% decline to bullish hopes of a further 32% surge.
Risks that could derail the share price
Of course, no investment’s without risk and Lloyds is no exception. It remains heavily exposed to the domestic UK market, making it vulnerable to a slowdown in consumer spending or a sharp rise in mortgage defaults. It’s also under the cloud of an industry-wide car finance mis-selling investigation, which could weigh on future profits if regulators clamp down hard.
With interest rates likely to stabilise or even decline from here, there’s also the chance that Lloyds’ net interest margins could narrow, putting further pressure on earnings.
Is it still worth buying the shares?
Despite the rapid run-up in the Lloyds share price this year, I still see value here. The bank appears well-positioned to keep paying reliable dividends, and the forecast growth in both earnings and revenue provides reason for cautious optimism.
Barring a severe economic downturn, Lloyds looks set to continue rewarding shareholders for years to come, so I’m not about to sell my shares. In my opinion, it’s still one of the best UK banks and a stock worth considering as part of an income portfolio.
