Barclays (LSE: BARC) shares are down 19% from their February 4 yearly high of £5.06. However, the latest pullback appears to be increasingly out of step with the bank’s dynamics.

Despite the more challenging macroeconomic situation due to the ongoing conflict in the Middle East, the group continues to generate stable profits. It is also strengthening its balance sheet and returning capital to shareholders at a reasonable pace.

Therefore, I think it is worth considering the classic short-term risk/long-term reward game, with a huge difference between current price and true value. The difference between the two is where huge profits can be made for long-term investors.

So how high can shares go?

Underestimated compared to peers?

Starting with competitor comparisons, Barclays’ price-to-sales ratio of 2 is the lowest in its group, averaging 3.2. These companies include Standard chartered by 2.4, NatWest by 2.9, Lloyds at 3 and HSBC at 4.4. So it looks very undervalued here.

The same goes for its price-to-earnings ratio of 8.9 compared to an average of 11.4 for competitors.

It also looks attractive because of its price-to-book ratio of 0.7 compared to the competitor’s average of 1.1.

Really underrated?

I performed a discounted cash flow analysis to try to determine the true value of Barclays shares. This determines where shares should be valued – their “fair value” – based on the fundamentals of the underlying business.

To achieve this, the DCF model projects the company’s future cash flows and discounts them back to today. Some analysts’ modeling is more conservative than mine, depending on the inputs used.

However, based on my own DCF assumptions – which include a discount rate of 8.4% – Barclays shares are currently 58% undervalued at the current price of £4.08. This means the fair value of the share is around £9.71 – more than double its current value.

Stock prices often approach their fair value over time. So the gap here suggests a potentially a great buying opportunity worth considering today If DCF assumptions are valid.

Supported by robust growth dynamics

Earnings growth is the main driver of share price growth in the long run. The risk for Barclays is a sharper-than-expected slowdown in the UK economy, which could worsen its bad loan portfolio. Another is persistently high inflation and elevated Treasury yields, which could keep financing costs high.

Nevertheless, analysts forecast that Barclays’ profits will grow by an average of 8.2% annually until the end of 2028. This is well borne out by the results for 2025, where profit before tax (PBT) increased by 12.3% to £9.1 billion. Meanwhile, return on actual equity (ROTE) – a key measure of banks’ profit – increased by 0.8 percentage points to 11.3%.

Looking ahead, management raised its ROTE target to over 14% by 2028 (from over 12%). It also announced a £1 billion share buyback, which tends to boost share prices.

My view on the investment

I think the gap between Barclays’ short-term risk and long-term returns could close over time in the event of robust earnings growth. Therefore, I believe that it is worth the attention of long-term investors looking for share price increases.

I already own shares in two banks – HSBC and NatWest – and owning another one would upset the balance of risk and reward in my portfolio. However, other bargain opportunities have caught my attention, and several of them also generate high dividend yields.