HSBC (LSE:HSBA) Stock May Trade At A 42% Discount Following Buyback News

HSBC Holdings has delivered a very strong 5 year share price run, and that kind of track record naturally raises a question for anyone looking at the stock today. Are investors now paying a price that is fully explained by the returns the bank earns on the capital it deploys across its global operations, or has sentiment moved ahead of those economics?

• Over the past 5 years the stock has returned about 326.2%, which puts the focus squarely on whether HSBC's return on capital profile is strong enough to support that sort of long run outcome.
• The recent plan to buy back up to US$1b of shares and the enlarged US$1.5b tender for certain capital securities both feed into how efficiently the group uses its equity base and what that might mean for future returns on capital.
• Prefer to judge HSBC Holdings on earnings? See why HSBC Holdings's 11.6x P/E tells a different valuation story.

The issue now is whether the current share price can be explained by the level and durability of the returns HSBC earns on its capital.

If you are weighing whether HSBC's 5 year run is fully explained by the returns it earns on its capital, a focused stock screen can serve as a useful second reference point via 15 high quality undervalued stocks.

Is HSBC Holdings Still Cheap on Excess Returns?

The Excess Returns model values HSBC Holdings by estimating what the bank can earn above its cost of equity on each pound of book value. It then extends those extra earnings forward to see what that stream of surplus profit implies for long term worth.

HSBC is modelled with book value of £10.14 per share and stable book value of £11.77 per share, alongside stable EPS of £1.94 per share. The cost of equity is set at £1.00 per share, while excess return is £0.94 per share, which sits against an average forecast return on equity of 16.45%. That combination suggests the institution is expected to keep earning more on its equity base than investors are assumed to require, at least in the model.

The dividend framework behind this, using separate dividend discount work, assumes ongoing distributions with an implied growth rate of 3.61%. Because the modelled excess returns sit meaningfully above the cost of equity, the Excess Returns output points to an estimated intrinsic value substantially above the current £13.54 share price. Despite the latest plan to buy back up to US$1b of shares, which can signal management confidence in capital efficiency, the market price still sits below what the Excess Returns model suggests the equity could be worth. Find out what HSBC Holdings could be worth using our Excess Returns estimate.

The HSBC Holdings Narrative: What Would Justify Today's Price?

Simply Wall St Narratives follows on from the HSBC Holdings valuation puzzle. Narratives explain which paths for growth, margins and earnings would need to occur for the shares to be worth materially more or materially less than the current price. Each one anchors a fair value to a defined mix of catalysts and risks so you can track over time which version of HSBC Holdings' story appears to be unfolding on the Community page.

Bulls and bears looking at HSBC Holdings are reading the same restructuring story but drawing very different conclusions about what the current price already reflects.

Bull case: 8% undervalued

The analyst consensus Narrative on Simply Wall St frames the upside around HSBC Holdings turning its refocused footprint into compounding earnings power.

"Ongoing simplification and business exits, including 15 announced disposals and an increased organizational savings target of 2b US dollars, are freeing up 1.1b US dollars of costs to redeploy into higher returning areas..."

Discover why this Narrative puts HSBC Holdings at 8% undervalued.

Bear case: 36% overvalued

The bearish analyst Narrative on Simply Wall St concentrates on funding mix shifts, exits and execution risk weighing on what investors are already paying for HSBC Holdings.

"The plan to exit 15 businesses and markets between 2026 and 2028 is set to remove US$2.2b of revenue, if the cost base that is freed up is recycled into projects that do not scale as hoped..."

Explore why this Narrative puts HSBC Holdings at 36% overvalued.

HSBC Holdings valuation still leaves one critical angle unexplored

All the numbers around HSBC Holdings only tell part of the story, because Simply Wall St’s broader checks have also highlighted specific risks that deserve a closer look from you. Take a closer look at 2 warning signs before settling on a valuation.

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