Forecasting what’s going to occur to the Barclays (LSE: BARC) share value in simply 5 years would possibly appear to be a mug’s sport.

However, if I purchase some for the long run, I have to consider they’re undervalued, proper?

So, I’m simply going to attempt just a few eventualities and see the place they could lead us. However first, a take a look at what occurred prior to now 5 years…

Similar once more?

There’s an outdated thought that we are able to forecast the climate pretty properly by simply saying tomorrow will likely be like right now.

And the best way financial institution shares have spent so a few years going nowhere, it’s beginning to sound prefer it could be true right here too.

Prior to now 5 years, Barclays shares have misplaced 15%. So the identical once more would imply a share value of 119p (from 140p as I write). And that’s no good in any respect.

No, it’s higher

However I believe, the return can beat that, if the dividend retains up. Forecasts put it at 8p per share (and rising, however I’ll stick to 8p right here).

That might add 40p in 5 years, and every 140p we make investments could possibly be price 159p (with the 15% share value drop). Not nice.

However what if I purchase extra shares with my dividends every year, after which get extra dividends from my new shares? Nicely, I work out that might take me to round 165p. That appears a bit higher.

Now, what if the dividend rises according to forecasts? I’ve to extrapolate (or guess) a bit. However I reckon that may take me to round 174p.

Earnings development

Now, what occurs if earnings ought to rise as predicted, we don’t get the identical share value drop because the previous 5 years, and the price-to-earnings (P/E) valuation of Barclays shares stays the identical?

That needs to be reasonble, doesn’t it? I imply the P/E ratio is down at simply 4.9 proper now. Can it actually get decrease?

Forecasts present earnings rising 20% within the subsequent two years. Let’s be conservative and say 30% over 5 years.

That might add an additional 42p to the share value, taking us to over 210p together with dividends. It might imply a five-year return of fifty%. I’ve had rather a lot worse than that.

Value restoration

Now, that P/E of beneath 5 can’t final, can it? I hope it might double, however I’ll be cautious once more and guess at an total rise to eight. That might suggest one other 63% on prime of the share value.

I’d be taking a look at doubling my money within the subsequent 5 years.

Will something like this actually occur? Nicely, that’s the difficult half. When you’d requested me 5 years in the past, I’d have made the identical form of guess — and been badly improper.

Lengthy-term worth

With inflation, rates of interest, and the economic system inflicting a lot ache, the banks might endure for a while but.

So please take my guesses right here as only a little bit of enjoyable, and put no religion in them in any respect.

However, they do make me suppose Barclays shares might earn some nice long-term returns.