HSBC (LSE:HSBA) Stock Still Looks Undervalued Despite Its 418% Run
HSBC Holdings has delivered a very large 418.4% return over the past five years, yet its valuation signals are split, with an intrinsic value estimate based on the Excess Returns model suggesting meaningful upside while earnings-based multiples lean expensive and the broader checks are cautious.
- Over five years, shareholders have seen a 418.4% return, which puts extra focus on whether the current share price still leaves room for further gains.
- HSBC's role in shaping expectations for US earnings growth across sectors such as energy, technology and industrials can support optimistic profit assumptions, but any setback to those earnings expectations may weigh quickly on what investors are willing to pay for the stock.
- The stock only passes 2 of 6 valuation checks, which implies HSBC Holdings does not screen as a clear bargain on the broader measures even though the Excess Returns model suggests it may be undervalued by 31.6%.
The issue now is whether HSBC Holdings' recent share price strength already reflects this intrinsic value estimate, or if the current level still offers a reasonable margin of safety.
Does HSBC Holdings Look Undervalued on Excess Returns?
The Excess Returns model looks at how efficiently HSBC Holdings turns its equity base into profit after covering its cost of capital. On this view, the stock carries an intrinsic value estimate of about £22.31 per share, compared with the current market price. This implies a 31.6% discount.
For HSBC Holdings, the inputs are unusually rich. Book value sits at £10.17 per share and is projected to move toward a stable £11.68. Stable EPS of £1.87 per share, drawn from 15 analyst estimates, supports an average Return on Equity of 16.01%. After charging a £0.97 per share cost of equity, the model still leaves an excess return of £0.90 per share, which is what drives the higher fair value. Because HSBC now sees the strongest US Q2 earnings growth outlook since the immediate post pandemic period, the current gap between price and this return based valuation suggests the market may not be fully pricing in those profitability expectations.
On the Excess Returns view, HSBC Holdings stock currently screens as undervalued relative to the earnings power implied by its equity base.
Our Excess Returns analysis suggests HSBC Holdings is undervalued by 31.6%. Track this in your watchlist or portfolio, or discover 9 more high quality undervalued stocks.
Is HSBC Holdings Getting Expensive on Earnings?
For a bank like HSBC Holdings, the P/E ratio is a useful way to see what investors are paying for each unit of current earnings.
HSBC Holdings currently trades on a P/E of about 16.6x, compared with an average of 11.6x for the wider Banks industry and a peer group average of around 11.9x. The Fair Ratio, which reflects what investors might typically pay for a bank with HSBC's profile, sits lower at roughly 11.2x. That gap suggests the market is assigning a premium to HSBC's earnings relative to both sector norms and what the tailored model implies.
Based on this framework, HSBC Holdings stock currently appears overvalued on its earnings multiple, without taking into account any potential changes in future profit expectations.
On the P/E measure, HSBC Holdings currently looks priced on the expensive side relative to its earnings.
See what the numbers say about this price — find out in our valuation breakdown.
The HSBC Holdings Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for HSBC Holdings pick up where the valuation puzzle leaves off by spelling out the specific assumptions about HSBC Holdings' future growth, margins and earnings that would make the current stock price look materially higher or lower. Instead of giving just a single figure from a ratio or model, they set out the future that figure relies on, so you can monitor whether those conditions actually play out over time on the Community page.
The community is split on HSBC Holdings, with one camp leaning into the Asia and Wealth build out while another worries that execution and regional risks already look fully reflected.
Bull case: 12% undervalued
"Rapid expansion of Wealth and new customer flows in Asia, including US$29b of net new invested assets with more than half from Asia and over 900,000 new to bank customers year to date, shows HSBC is plugged into long term growth in cross border capital and rising affluent wealth..."
Read the full Bull Case to see why HSBC Holdings could be undervalued
Bear case: 6% overvalued
"Continued exposure and strategic reliance on growth from Asia, particularly Hong Kong and mainland China, leaves HSBC vulnerable to region-specific macroeconomic slowdowns, heightened regulatory crackdowns, or geopolitical tensions, potentially dampening top-line revenue growth and eroding net margins..."
Read the full Bear Case to see why HSBC Holdings could be overvalued
Do you think there's more to the story for HSBC Holdings? Head over to our Community to see what others are saying!
The Bottom Line
For HSBC Holdings, the Excess Returns intrinsic value estimate points to meaningful upside, while the P/E comparison flags the stock as overvalued versus typical bank peers. That split, along with a low value score, suggests the optimism in the share price leans heavily on earnings holding up strongly against its capital base. Much of the gap comes down to how you weigh cash flow durability against already full market expectations after a very large multi year move. The key question from here is whether HSBC’s Asia and wealth expansion can sustain the profitability that the current rating appears to assume, rather than leaving the stock as a value trap.
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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