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The PE10 compares the current share price with average earnings per share for the last ten years. This smoothes out any short-term volatility and lets you see whether a company looks cheap compared to its long-term earnings.unt for companies that still look cheap, based on their long-term earnings potential. To help me hunt down these bargains, I’m using a special version of the price to earnings ratio called the PE10, which is one of my favorite tools for value investing.
Today, I’m going to take a look at the PE10 for the U.K.’s third-largest bank, Barclays PLC (ADR) (NYSE:BCS) .
Is Barclays a buy?
Barclays shares have risen by 79% over the last year. Are they now fully priced, or is there still more to come?
Let’s take a look at the bank’s current P/E and its PE10:
Barclays PLC (ADR) (NYSE:BCS)’s trailing P/E of 9.8 is higher than its PE10 of 6.9, suggesting that the bank could still be a buy, as its long-term average earnings are higher than its current earnings.
Discount to book value
There’s a second reason I believe Barclays PLC (ADR) (NYSE:BCS) may be a strong buy. As I write, Barclays shares are changing hands for around 320 pence. This is 21% below the bank’s net asset value per share of 405 pence, and 7% below its net tangible asset value per share of 344 pence.
Healthy banks normally trade slightly above book value, so these discounts indicate that the market is still pricing a lot of risk into Barclays — risk I believe may be exaggerated.
Return to profits
Barclays PLC (ADR) (NYSE:BCS)’s first-quarter results showed the bank returning to profit, and brokers’ consensus forecasts suggest that full-year earnings could be around 35 pence, placing Barclays on a forward P/E of 9.2.
The firm’s dividend is also expected to rise this year — last year’s payout of 6.5 pence is expected to rise by around 12% to 7.3 pence, providing a forward dividend yield of 2.3%.