Image source: Getty Images
Lloyds‘ (LSE:LLOY) shares have been on quite a rampage. With the benefits of higher interest rates feeding into wider profit margins, the UK’s most popular bank stock has more than doubled since the start of 2024. And even after some recent profit taking in February, Lloyds is still trading near its highest point since the 2008 financial crisis.
Yet, could there be even more growth on the horizon? Fears of an inflationary rebound in energy prices following the latest conflict in the Middle East could force the Bank of England to keep interest rates higher for longer. And that might be enough to keep the gravy train going for British banks.
Could this potentially be enough to make Lloyds double again? And is now the time to think about buying shares?
Catalysts for doubling
Even with a seemingly low share price of 100p, Lloyds’ market-cap of £59bn makes a 100% return fairly challenging. But it isn’t impossible.
Two things need to happen:
- Lloyds’ earnings need to grow ahead of expectations.
- The bank’s earnings multiple needs to expand.
Interest rates being held higher for longer would certainly help with the first requirement. And if the UK’s central bank is forced to reverse some of its more recent interest rate cuts to combat energy inflation, Lloyds’ all-important return on tangible equity (RoTE) could potentially surpass its 2026 target of 16%.
But the second factor is almost entirely driven by the mood and momentum of investors – something that’s far more difficult to control. Yet, there are some potential catalysts here as well.
A cancellation of the FCA redress scheme for the motor finance scandal would immediately lift a cloud of uncertainty surrounding the bank stock and unlock £1.95bn overnight that Lloyds has currently put aside.
Similarly, a surprise rebound in UK economic growth could spur a wider industry re-rating supporting higher valuations for London-listed banks, and likely the UK stock market as a whole – an uplift that would be further amplified if international investors come knocking.
Latest Lloyds forecasts
This hypothetical scenario is rather optimistic. While there are some signs of recovery, the UK economy remains exceptionally fragile. At the same time, while lobbying efforts have reduced the scope of the motor finance scandal, it’s unlikely for the FCA’s redress scheme to be cancelled.
However, when it comes to Lloyds’ specific performance, some optimism might not be misplaced. The bank has already beaten analyst expectations for 2025. And management even went on to upgrade its outlook for 2026.
Despite this, Lloyds’ shares are still trading at a price-to-earnings ratio that is lower than that of its peers. And so it’s no surprise to see institutional analysts hike their 12-month share price forecasts to around 125p.
While a 25% gain is a far cry from 100%, that still suggests some market-beating performance is on the horizon. And if Lloyds can continue to outperform despite a weakened UK economy, the stock could indeed go on to double in the long run.
That’s why, for investors seeking exposure to the banking sector, Lloyds could be worth mulling. But it’s not the only British bank showing promise right now.
