Lloyds Shares: 3 Reasons to Avoid the FTSE 100 Bank
According to an analysis by Yahoo Finance UK, despite Lloyds (LSE:LLOY) shares experiencing significant price gains in 2025, they still appear undervalued across various metrics. The bank’s price-to-earnings (P/E) ratio stands at 10.2 times, with a P/E-to-growth (PEG) ratio of 0.6, indicating that the share is cheap relative to predicted profits. Additionally, its price-to-book (P/B) multiple is 0.9, falling under the benchmark of one.
The source notes that Lloyds, the UK’s largest mortgage provider, has seen its market share rise from 18% in 2021 to 20% last year, reflecting its strong brand presence. However, as with other product lines, competition from high street banks, building societies, and challenger banks is intensifying. Lenders are not only engaging in an arms race to offer the lowest rates but also using innovative methods to attract customers. For instance, April Mortgages recently launched a 100% loan without requiring borrowers to provide collateral, while Skipton Building Society introduced a ‘deferred payment’ mortgage that delays repayments for three months.
Yahoo Finance UK analysis suggests that Lloyds may need to respond aggressively to maintain its market position, potentially at the expense of margins. Cyclical shares like banks rely on strong economic conditions to grow margins. Although the UK economy grew 0.7% in the first quarter, up from 0.1% in the previous quarter, this growth may not be sustainable. Analysts and economists believe that the first-quarter growth was partly due to businesses bringing forward investment to avoid potential US tariffs, which may lead to a more subdued second-quarter figure.
The source raises concerns about the UK’s economic outlook, citing low corporate confidence, the ongoing cost-of-living crisis, and rising unemployment numbers. Moreover, Lloyds does not have significant overseas operations to offset weakness at home. The bank’s uncertain profits and share price outlook make it a less attractive investment opportunity.
Another significant risk facing Lloyds is a potential investigation into motor finance arrangements. The Supreme Court will decide in July whether secret commissions between banks and auto dealers are against customers’ best interests. If the court upholds the Court of Appeal’s ruling, Lloyds, which has set aside £1.1bn to cover potential costs, could be especially vulnerable. Some analysts predict that the eventual bill could be as high as £50bn, with Lloyds potentially liable for a substantial portion of these penalties.
As noted by Yahoo Finance UK, a decision in favour of Lloyds could lead to a significant increase in its share price, but it’s a risk that the analyst is not prepared to take. The potential impact on dividends and the bank’s share price is substantial, making it a less appealing investment opportunity.
In conclusion, despite Lloyds shares appearing undervalued, the source highlights three key reasons to avoid investing in the FTSE 100 bank: intensifying competition in the mortgage market, uncertainty surrounding the UK’s economic outlook, and the potential risks associated with the motor finance arrangements investigation. As with any investment, it is essential to consider a diverse range of insights and weigh the potential risks and rewards before making a decision.
The views expressed in this article are those of the writer and may differ from the official recommendations made by Yahoo Finance UK.
