Barclays (LSE: BARC) shares are down 19% from a one-year high on February 4 of £5.06. But the recent decline increasingly looks outside the bank’s core momentum.

Despite the difficult macro conditions in light of the ongoing conflict in the Middle East, the group continues to achieve resilient profits. It is also working to strengthen its balance sheet and return capital to shareholders at a healthy rate.

As such, I think it looks like a classic short-term risk/long-term reward play to consider, with a significant gap between its current price and its true value. The difference between these two is where big profits can be made for long-term investors.

So how high can the stock go?

Undervalued versus peers?

Starting with comparisons with its rivals, Barclays’ price-to-sales ratio of 2 is the lowest of its group, which averages 3.2. These companies include Standard Chartered at 2.4, NatWest at 2.9, Lloyd’s In 3 and HSBC At 4.4. So, it seems undervalued here.

The same is true for its price-to-earnings ratio of 8.9 versus the 11.4 average of its peers.

It also looks like a good deal for its price-to-book ratio of 0.7 versus its competitors’ average of 1.1.

Really undervalued?

I performed a discounted cash flow analysis to try to determine the true value of Barclays shares. This determines where any stock should be priced – its “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’ models are more conservative than mine, depending on the inputs used.

However, based on my discounted cash flow assumptions – including a discount rate of 8.4% – Barclays shares are now undervalued by 58% at their current price of £4.08. This means the shares have a fair value of around £9.71 – more than double their trading price today.

Stock prices often converge to their fair value over time. So the gap here indicates a Possibly A great buying opportunity to consider today if These DCF assumptions hold.

Supported by strong growth momentum

Earnings growth is the main driver of long-term stock price gains. The risk for Barclays is a sharper-than-expected slowdown in the UK economy, which could worsen its bad loan book. The other reason is the continued high inflation rates and high government bond yields, which may keep their financing costs high.

However, analysts expect Barclays’ profits to grow by an average of 8.2% per annum until the end of 2028. This seems well supported by its 2025 results, which saw profits before tax (PBT) jump 12.3% to £9.1bn. Meanwhile, return on tangible equity (ROTE) – a key measure of banks’ profit – rose 0.8 percentage points to 11.3%.

Looking ahead, management has upgraded the ROTE target to over 14% by 2028 (from over 12%). It also announced a £1 billion share buyback, supporting share price gains.

My investment perspective

It seems to me that the gap between Barclays’ short-term risks and long-term rewards could close over time thanks to strong earnings momentum. Therefore, I think it deserves the attention of long-term investors looking for stock price gains.

I already have holdings in two banks – HSBC and NatWest – and owning another bank would upset the risk/reward balance in my portfolio. However, other deal opportunities downstairs have caught my attention, many of which also generate high dividend income as well.