There’s a school of thought that the Lloyds Banking Group (LSE: LLOY) share price surge is over. Is that true?

The FTSE 100 bank has had a brilliant run, rocketing roughly 300% since the pandemic. To a degree, the quick money has been made. I’ve seen that myself. When I bought the shares three years ago, they were trading at roughly 41p. Last month they topped £1.

I bought when the price-to-earnings ratio was six and the price-to-book value just 0.4. Last month, the P/E hit 17 and the P/B topped at 1.2. Lloyds wasn’t the bargain it was.

FTSE 100 cyclical stock

There’s another worry. Banks have been generating bumper profits thanks to higher interest rates, which allow them to widen the margin between what they pay savers and charge borrowers. But with inflation expected to retreat back to the 2% target, many assumed profits might fall too.

It’s a similar story with dividends. I bagged a trailing yield of 5%. Lately, that’s slipped to 3.2%. A higher share price, lower yield and potentially shrinking profits don’t exactly scream Buy. Also, banking stocks tend to be cyclical, rising and falling with business confidence, consumer sentiment and the broader economy. After the party, we may be feeling the pain.

When I last wrote about Lloyds last Sunday (1 March), I concluded the fun was over but the stock would still be a steady compounder over the years. A lot has happened since. War has erupted in Iran, rattling global markets. Lloyds shares are down more than 10% over the past month, although they’re still up 32% over the year.

Following that dip, the metrics look a little more tempting again. The P/E ratio has retreated to 13.8, while the trailing yield crept towards 3.9%.

Valuation down, dividend yield up

There could be more income ahead, as the board continues to hike the dividend each year. Analysts currently forecast a yield of 4.4% for full-year 2026, climbing to 5.25% in 2027. Also, as the oil price rises, and threatens to drive up inflation, banks may maintain their higher net interest margins. On the other hand, a slowing economy would hurt, and increase loan impairments.

Today, Lloyds looks a bit more attractive than it did, but it’s not a dramatic shift. It’s only been a week, but with markets tense, there could be more volatility to come. And a potentially lower entry point.

Anyone considering Lloyds should also look at the other FTSE 100 banks too. Barclays has fallen more than 15% over the past month. It now trades on a notably cheaper P/E ratio of roughly 9.5. Since I already hold Lloyds, Barclays is at the top of my shopping list.

Tragically, the conflict in Iran could easily drag on. Some investors will be tempted to wait for even lower prices. Timing the bottom of the market is almost impossible, and prices can rally fast. Investors tempted by the dip in banking stocks shouldn’t leave it too long. For long-term investors, I still think Lloyds is worth considering today. One option is to drip feed money into the stock, taking advantage of any further falls. Which is exactly what I’ll be doing with Barclays.