The Lloyds share price could be primed for take-off. Is it time to buy?

The Lloyds (LSE: LLOY) share price has been perennially disappointing for investors. The stock has underperformed over the last five years. However, year to date, the Lloyds share price is actually up 31.5%. This has inspired an already die-hard and resilient cohort of investors to stick it out for a bit longer. But an improved performance on the stock market right now is not the only thing that has investors believing the next few months could be better for Lloyds. So could this be a great moment for me to tap into a potentially lucrative upswing in the fortunes of this stock?

A potential catalyst event

Deutsche Bank analysts have described Lloyds’ upcoming full-year earnings report as a “potential catalyst event”. This means that the share price could get a boost. In fact, Deutsche Bank went one step further stating that it is anticipating “financial targets above consensus and above other UK banks”. The full annual report, which will come out on 24 February, is therefore cause for lots of anticipation.

In the same vein, it is expected that Lloyds will announce a £1bn share buyback and a 1.5p-2.07p dividend. If that materialises it will mean an annual dividend yield of 8%-9%, which is handsome reward for investors who got a 0.67p dividend in 2021. Even if this does not happen though, it is looking very likely that Lloyds will post very strong numbers next Thursday. 

A strong year

The company has delivered with its performance so far for 2021/22. After nine months, net income was sitting at a healthy £11.6bn, which is 8% higher than at the end of the previous year’s Q3. Come next Thursday, this is expected to translate to just under £7bn of net profit. This would significantly outstrip any net income the company has produced in the last five years. To me, it would also justify the 60p price target that some analysts are placing on the stock. At the time of writing, the Lloyds share price is 51p. This is why I think that it may be a very opportune time for me to buy this stock, in the short term. Long term though, I am aware that the rise of Fintech banks such as Wise, which went public in July last year, threatens to disrupt already inconsistent returns on traditional banks such as Lloyds.

Still undervalued 

The Lloyds share price is undervalued right now, with a forward P/E ratio of just 7.82. Were it not for the chronic underperformance of this stock over the past few years, it would be a no brainer for me. It must be mentioned though that Lloyds has been operating in a very low-interest-rate environment. Interest rates were as low as 0.1% to stave off the effects of the pandemic. With inflation above 5% now though, the Bank of England will have to raise rates. Perhaps the Lloyds share price will finally realise the potential that its earnings suggest. For me, the long-term risks still outweigh the benefits. I will be keeping a close eye on this one for now but not buying. I want to see how the downsides play out.

Stephen Bhasera has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.