Is now the time to buy Lloyds shares?

The rampaging Lloyds Banking Group (LSE: LLOY) share price has reached new significant levels in recent days. On Monday, the FTSE 100 bank closed at its most expensive since February 2020, above 51.11p per share. It’s fallen back a fraction, but remains a good 75% more valuable than it was a year ago.

Yet despite these gains, Lloyds’ share price still seems to offer top value, on paper. Not only does the business trade on a forward price-to-earnings (P/E) ratio of just 6.6 times. Lloyds also boasts a magnificent 4.7% dividend yield at current prices.

Sparkling results

The euphoria around Lloyds has been boosted by some solid financials released in late October. In a forecast-beating release, The Black Horse Bank said that pre-tax profits clocked in at £5.1bn for the first nine months of 2021. That compares to the profit of just £620m recorded in the same period in 2020.

Lloyds said the result “largely [reflected] the improved economic outlook for the UK” in the period versus the deterioration expected last year. While net income dropped 1% year-on-year between January and September to £11.1bn, the bank benefitted from the release of cash held to cover a possible surge in bad loans.

For this, Lloyds reported a net credit of £791m for the nine months to September. That compares with net impairments exceeding £3.9bn in the corresponding 2020 period.

On the right track?

Things are certainly brighter at Lloyds than they were a few months ago. Economic conditions in the UK are more robust than many had predicted, despite Covid-19 cases rising again and booming inflation. This explains why the FTSE 100 bank also lifted its full-year guidance last week.

The recent surge in consumer price inflation also seems to have played into the hands of the banks. It’s brought forward the prospect of Bank of England rate rises, possibly as soon as the Monetary Policy Committee’s upcoming meeting on Thursday.

Critically, concerns of a sharp slowdown in the housing market as Stamp Duty returns have also been shot down. Latest HMRC data showed home sales in September hit levels not seen since 2005. This is a big deal to Lloyds as Britain’s most popular mortgage provider.

Why I won’t buy Lloyds shares

Lloyds might be flying at the moment. But I think this could be as good as it gets over at the bank.

The UK economy has bounced back strongly, sure. But remember that Britain took a particularly big economic hit in 2020, meaning that this bounce back has come from a very low base.

In fact, I remain extremely concerned about the economic outlook in 2022 and beyond as a long Covid-19 hangover and sustained Brexit turbulence threaten. The Institute for Fiscal Studies is predicting long-term GDP growth of just 1.5%.

I’m also concerned that while interest rates look set to rise, they could still remain around historical lows should the economy indeed struggle, harming profits at banks like Lloyds still further. So while Lloyds’ shares are cheap, I’d much rather buy other FTSE 100 shares with better growth prospects today.

Royston Wild 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.