Assessing HSBC’s Valuation After Brazilian Cyberattack and Strong 61.6% Share Price Gain

If you own shares of HSBC Holdings or are thinking about making a move, you are in good company. Over the past few years, HSBC’s stock has been anything but boring. To give you a sense of just how dynamic things have been, the stock is up 32.6% year-to-date and a jaw-dropping 61.6% over the past twelve months. That is not just market noise. Investors seem to be warming up to HSBC’s story, even amid global banking uncertainties.

What is fueling this surge? A steady run of positive momentum has helped. In just the past seven days alone, HSBC is up 1.1%, and over the last month, it has climbed an impressive 8.9%. Behind the scenes, news flow has been mixed. The recent attempted cyberattack on a Brazilian unit made headlines, but it hasn’t slowed the stock’s advance. Even internal moves, like the call for managing directors to come back to the office more often, suggest a company focusing hard on its culture and operational discipline.

But numbers only tell part of the story, especially if you are weighing whether HSBC is a good value right now. According to a six-point valuation model, HSBC checks the “undervalued” box in just 2 out of 6 areas. That gives it a value score of 2, which is not particularly high, but it might just hint at hidden potential or untapped risk.

Let’s break down those valuation checks to find out whether the numbers back up the price action. Keep in mind, there is an even smarter way to think about a stock’s real worth, which I will share at the end.

HSBC Holdings scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: HSBC Holdings Excess Returns Analysis

The Excess Returns valuation method looks beyond traditional earnings to assess whether a company’s capital investments are delivering returns above its cost of equity. In HSBC Holdings’ case, the model starts with its current Book Value of £9.88 per share and a Stable Earnings Per Share (EPS) of £1.45, as forecasted by 16 analysts. The average Return on Equity is a healthy 13.37%, and the bank’s Cost of Equity stands at £0.92 per share. This results in an annual Excess Return of £0.53 per share, reflecting the value HSBC generates over what investors typically demand for their capital.

The Stable Book Value is projected to edge up to £10.87 per share, according to seven analysts’ weighted estimates. These figures suggest HSBC’s ability to grow profits on invested capital steadily, even as the banking sector faces ongoing pressures.

Based on these projections, the Excess Returns model calculates the company’s intrinsic value as significantly higher than its current share price. This implies the stock is trading at a steep 31.0% discount, which indicates potential undervaluation relative to future earnings power.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for HSBC Holdings.

Our Excess Returns analysis suggests HSBC Holdings is undervalued by 31.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: HSBC Holdings Price vs Earnings

The price-to-earnings (PE) ratio is one of the most popular ways to value profitable companies. It shows how much investors are willing to pay for each pound of the company’s earnings, making it a handy metric for banks like HSBC that consistently generate profits. A “normal” PE ratio can shift depending on how quickly a company is expected to grow and how risky investors perceive it to be. Typically, faster growth and lower risk usually justify a higher PE, while slower growth or greater uncertainty put downward pressure on valuations.

HSBC Holdings currently trades on a PE ratio of 13.47x. For context, the average PE for UK-listed banks is 10.50x, and among its peers, the figure sits at 9.84x. HSBC therefore commands a moderate premium compared to both the industry and its direct competitors. At a glance, this might suggest the market is willing to pay more for HSBC’s earnings, possibly due to better growth prospects or stronger financial health.

However, Simply Wall St’s proprietary “Fair Ratio” for HSBC stands at 9.15x. This metric is designed to reflect the multiple that most accurately fits HSBC’s unique profile, considering earnings growth, profit margins, market cap, risks, and the broader industry landscape. Unlike simple peer or industry comparisons, the Fair Ratio aims to capture the full story of what HSBC is worth, adjusted for both its opportunities and challenges.

With the actual PE at 13.47x and the Fair Ratio at 9.15x, HSBC appears to be trading at a notable premium. This suggests that, despite the market’s optimism, shares may be overvalued compared to what the company’s fundamentals justify.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your HSBC Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is a simple story that explains your perspective on a company’s future; it is where you connect your assumptions about growth, profit margins, or business strategy to a fair value, based on what you believe, not just what the numbers say.

With Narratives, you are empowered to blend your insights, financial forecasts, and valuation methods into a single, coherent view. This helps make sense of complex companies like HSBC by tying together new information and your unique outlook. Narratives are easy to create and update on Simply Wall St’s Community page, making them accessible tools for millions of investors.

More than just crunching numbers, Narratives enable you to see at a glance whether your estimated fair value is above or below today’s price, so you can decide when it might be time to buy, hold, or sell. In addition, because they update dynamically as events unfold, your Narrative stays relevant through each news headline or earnings report.

For example, some investors see HSBC’s Asian expansion and digital innovation fueling growth and set their fair value near £11.29. Others caution about real estate risks and market volatility, issuing price targets as low as £7.93.

Do you think there's more to the story for HSBC Holdings? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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