Long-established in the Banks industry, Lloyds Banking Group PLC (NYSE:LYG) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 4.33%, juxtaposed with a three-month change of -0.52%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Lloyds Banking Group PLC.
Decoding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 4/10
Profitability rank: 4/10
Growth rank: 1/10
GF Value rank: 7/10
Momentum rank: 7/10
Based on the above method, GuruFocus assigned Lloyds Banking Group PLC the GF Score of 63 out of 100, which signals poor future outperformance potential.
Understanding Lloyds Banking Group PLC's Business
Lloyds is a retail and commercial bank headquartered in the United Kingdom. The bank operates via three business segments: retail, commercial banking, and insurance and wealth. In retail, Lloyds offers primarily mortgages (66% of loan portfolio), credit cards, and current accounts to its customers. Its commercial banking operation provides lending, transaction banking, working capital management, and debt capital market services to large corporates and financial institutions in the U.K. Insurance and wealth rounds out the product lineup with life and property insurance as well as pension solutions and high-net-worth asset-management services.
Financial Strength Breakdown
Lloyds Banking Group PLC's financial strength indicators present some concerning insights about the company's balance sheet health. The company's debt-to-equity ratio is 2.16, which is worse than 85.48% of 1329 companies in the Banks industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 9999, which is above Joel Tillinghast's warning level of 4 and is worse than 0% of 926 companies in the Banks industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Lloyds Banking Group PLC's low Profitability rank can also raise warning signals.
A lack of significant growth is another area where Lloyds Banking Group PLC seems to falter, as evidenced by the company's low Growth rank. Lastly, Lloyds Banking Group PLC predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. It is crucial for investors to consider these factors when making investment decisions. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.
This article first appeared on GuruFocus.