Barclays (LSE:BARC) shares have delivered stunning returns over the last year. Despite a tough start to 2026, the FTSE 100 bank’s risen an impressive 38% in value over the last year. That is far better than the broader index’s 22% increase.

To put that into context, someone who bought 1,001 shares in the company 12 months ago would have seen the value of their investment soar to £4,310 from £3,114. With dividends thrown in, they’d have enjoyed a total return of 41%, or around £1,281.

The question is, can Barclays’ share price continue its heroic rise? I have my doubts…

Are Barclays shares expensive?

The problem — as is often the case with shares that surge in value — is that the bank now commands a sky-high valuation. Some stocks are deserving of a premium rating, for instance, if they have spectacular earnings potential.

This isn’t a category Barclays falls into, in my book. In fact, given the enormous challenges it faces (more on this later), I believe its shares look dangerously overvalued.

At 410p per share, the bank’s price-to-book (P/B) ratio sits at 1.1. That’s hardly enormous at first glance. However, it’s more than double Barclays’ 10-year average of 0.5. And as interest rates fall back towards more historical levels, this leaves Barclays’ share price in peril, in my opinion.

What could go wrong?

You see, retail banks struggled to grow profits following the 2008 financial crash. A prolonged period of depressed interest rates whacked their net interest margins (NIMs), which measures the difference between the interest they pay savers and what they charge borrowers.

Inflation spiked following the Covid-19 pandemic, driving interest rates higher. But easing inflationary pressures has seen the Bank of England slash its lending benchmark, and further cuts are likely, with policymakers also tipped to act to stimulate the flagging economy. This will pull the banks’ already-wafer-thin NIMs still lower (Barclays UK’s margin was 3.6% as of December), and closer to those of the 2010s when banks struggled to generate any meaningful growth.

The prospect of weak economic growth on its own presents a major challenge to banks. Will they be able to generate sufficient loan growth to increase profits? Might they also see a sharp rise in impairment charges if borrowers begin to default on their payments?

Finally, the traditional high street operators have a tough task to grow earnings as challenger banks grow in influence. These new-age banks have lower costs that allow them to offer more attractive products. And many like Monzo are raising capital to intensify their attacks and expand into new product areas, increasing the pressure on established banks.

Here’s what I’m doing

I’m not saying Barclays is a lame duck. It has significant brand power, which can support earnings even if market conditions worsen or the competition increases. A sprawling investment bank also leaves it in a better place than high street rivals like Lloyds.

But do the risks outweigh the potential benefits of buying Barclays shares? I think so, and especially at current prices. It’s why I’m looking for other FTSE 100 stocks to buy instead.