Is Lloyds Banking Group PLC Running Out Of Steam?

Rewind to the end of 2013 and being an investor in Lloyds (LSE: LLOY) was rather exciting. That's at least partly because the bank's shares had risen from 25p at the start of 2012 to around 79p at the end of 2013. That's a rise of over 200% in just two years and looking ahead, many investors were predicting a similar rate of growth over the next two years.

///>

However, in the two-and-a-bit-year period since then, Lloyds' shares have fallen. And it feels as though the excitement which surrounded the bank back then has disappeared. At the end of 2013, the market was excited about the improving state of the UK economy, with house prices beginning to move upwards, the outlook for unemployment improving and the prospects for asset price growth being high due to a relatively bright global macroeconomic outlook.

Furthermore, investors were feeling upbeat about the possibility of government share sales of Lloyds, as well as the scope for rising dividend payments as the bank gradually moved back into profitability.

Where's the love?

Despite many of those things having now happened and the outlook for the UK economy still being upbeat in the long run, Lloyds seems to be rather unloved by the market. It's highly profitable, very efficient when compared to its UK-listed peers, is set to pay a FTSE 100-beating yield this year (with more dividend growth in the pipeline) and the government's stake is gradually being sold down.

As a result, it could be argued that Lloyds has run out of steam. Certainly, it has been a frustrating couple of years and its shares have disappointed, but Lloyds' share price could go much, much higher than its current level. In fact, a price of over 100p is very achievable in the medium term.

A key reason for this is Lloyds' valuation, with the bank's shares trading on a price-to-earnings (P/E) ratio of less than 10. Were they to trade at 100p, they would still have a P/E ratio of 13.2, which when the FTSE 100 has a P/E ratio of around 13, seems to be very reasonable. Furthermore, Lloyds has a yield of 6.1% at the present time, which is set to benefit from an increase in dividends of 17.8% in 2017.

Clearly, Lloyds is cheap and with growing dividends it has a clear catalyst to push its share price higher. Certainly, the last two years have been hugely disappointing, but as 2012 and 2013 showed, Lloyds can deliver exceptional capital growth in a relatively short space of time - even when its outlook is rather uncertain.

After all, at the start of 2012 (i.e. just before its shares gained 200% in two years), Lloyds was in dire straits and facing a very challenging outlook. That's not the case today. So, far from running out of steam, Lloyds could be about to roll back the years and deliver growth akin to that experienced in 2012 and 2013.

Of course, finding stocks that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. As such, 2016 could prove to be an even better year than you had thought possible.

Click here to get your copy of the guide - it's completely free and comes without any obligation.

Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.