Lloyds Banking Group (LSE:LLOY) has often been referred to as a penny stock since 2009. Despite its share price trading below 100p for the last 15 years, Lloyds is not actually a penny stock. With a market capitalisation of £36.6bn, it is one of the largest companies on the London Stock Exchange.
Penny stocks, on the other hand, are typically small enterprises with market caps below £100m and are known for their volatility. This does not describe Lloyds, as its stock has remained around the 50p mark for over a decade.
While penny stocks may offer growth potential, Lloyds has been lacking in this area. The bank has struggled to deliver significant returns, especially with the collapse of interest rates following the 2008 financial crisis.
The low interest rates have made it challenging for banks like Lloyds to generate profits, particularly from lending programs such as mortgages. Despite the recent increase in interest rates benefiting Lloyds, future rate cuts could once again impact the bank’s profit margins.
Cash flow is a key trait that penny stocks often lack during economic downturns, and Lloyds stands out in this regard. Having a strong cash flow provides flexibility for management in allocating capital, which can be advantageous in competitive markets.
While Lloyds may not be a tempting buy for some investors due to factors like interest rate fluctuations, it remains a significant player in the market. Ultimately, investing in businesses with more control over their destiny may be preferred over those subject to external factors like interest rates.