How Does HSBC’s 62.5% Share Price Surge Stack Up After Cybersecurity Incident?

Thinking about what to do with HSBC Holdings stock? You are far from alone. The company’s recent share price performance has been impossible to ignore, especially if you have been following the banking sector. In the past year alone, HSBC has delivered a massive 62.5% gain, and it is up 35.5% year-to-date. The longer-term numbers look even more impressive with a 181.8% gain over three years and a staggering 360.4% over five. Just last month, shares surged another 10.3%, adding to the mounting sense that something is shifting for this global financial heavyweight.

Some of this momentum may reflect renewed optimism after a string of news stories, including management calls to bring directors back to the office and updates on cybersecurity in HSBC’s operations abroad. These headlines can certainly impact investor confidence, either by highlighting the bank’s proactive response to risk or its focus on leadership stability amidst global changes.

But is HSBC still a bargain after such a blistering rally? That is where things get interesting. According to our valuation scorecard, where a company gets one point for each of six common checks if it is found to be undervalued, HSBC earns a score of 2. This means it clears two out of six value hurdles, suggesting room for discussion about whether it is truly cheap, fairly priced, or possibly even getting ahead of itself.

Let’s break down how these valuation approaches actually line up for HSBC, and consider whether there is a smarter way to think about value before you make your next move.

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 model looks at how efficiently a company puts its investors' money to work. In simple terms, it analyzes whether HSBC Holdings is making more from its equity investments than its cost of capital and whether that advantage is sustainable over time.

Key figures for HSBC include a Book Value of £9.88 per share and Stable Earnings Per Share (EPS) of £1.45, as projected by 16 analysts. The Cost of Equity stands at £0.91 per share, which means HSBC’s Excess Return is £0.54 per share. This suggests the company is generating returns above what it costs to raise capital. The average Return on Equity is a robust 13.37%, and the Stable Book Value is expected to reach £10.87 per share according to estimates from 7 analysts.

The Excess Returns model calculates an intrinsic value that is 30.0% higher than the current share price. This implies HSBC is undervalued by a significant margin and has potential to outperform if the company maintains these consistent returns on equity.

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 30.0%. 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 a widely used measure for valuing profitable companies, as it connects a company’s share price to its earnings, making it easy to compare with both peers and historical averages. This multiple is particularly helpful when a business like HSBC has consistent profits, as it provides a snapshot of how much investors are willing to pay for each pound of earnings.

However, what qualifies as a “fair” PE ratio does not exist in a vacuum and is shaped by growth prospects and risk. Companies with stronger growth expectations or lower risk profiles often justify higher PE ratios, while those facing uncertainty or slower growth typically trade at lower multiples.

Currently, HSBC Holdings trades at a PE ratio of 13.82x. That is higher than the industry average of 10.36x and the peer average of 10.06x, suggesting a premium compared to other banks. To cut through the noise, Simply Wall St’s proprietary “Fair Ratio” for HSBC is 9.28x. The Fair Ratio aims to capture a more complete view than just industry averages or peer comparisons by layering in considerations like the company’s growth trajectory, profit margins, risks, industry trends, and its market cap.

Comparing HSBC’s current PE of 13.82x to its Fair Ratio of 9.28x reveals that the stock is trading at a significant premium to what would be considered justified by these factors. This suggests that HSBC may be overvalued on this metric right now.

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, so let’s introduce you to Narratives. A Narrative is your own story about a company, your perspective on HSBC Holdings’ future, grounded in numbers like your fair value estimate or forecast for revenue, earnings, and margins.

Rather than just relying on ratios or analysts’ targets, Narratives connect the story you believe about HSBC (why it will thrive or struggle) directly to a financial forecast and, ultimately, a fair value. This approach bridges the gap between the headlines that inspire you and the hard numbers that underpin your investment decisions.

Simply Wall St makes it easy and accessible to build, share, and compare Narratives within the Community page. It is a platform where millions of investors test and refine their investment stories. Narratives update live as new news or earnings come in, meaning your outlook can evolve dynamically with the market. This helps you decide when a stock is undervalued or overvalued in ways that matter to you personally.

For HSBC Holdings, some investors see strong Asian wealth management and digital innovation as catalysts for long-term value (setting bullish fair values above £11), while others foresee risks from market volatility and real estate exposures (leading to more cautious 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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