Is the HSBC share price an absolute steal at today’s levels?
The HSBC (LSE: HSBA) share price has been choppy during the turbulence stirred up by Donald Trump’s trade tariffs.
That was probably inevitable as HSBC’s exposure to both East and West has plonked it right on the front line of the US-China trade war.
Like many FTSE 100 stocks, it’s bounced back somewhat after the 90-day truce announced on 9 April, despite the fact that Trump didn’t relax any tariffs on China.
This might suggest HSBC’s decision to reorganise into Eastern and Western divisions is already starting to deliver. This is an incredibly uncertain time and right now we just don’t know.
What we do know is that HSBC shares have smashed it lately. Despite Trump turbulence, they’re up 20% over one year and 110% over five.
Really generous yield
They still seem decent value with a price-to-earnings ratio of 8.77. That said, the price-to-book ratio has now climbed to 1.
I wouldn’t call it an absolute steal, but it’s pretty close. Especially with a 5.9% trailing dividend yield, which is forecast to hit 6.5% for the year ahead. Better still, that’s covered roughly twice by earnings.
HSBC has also been generous with share buybacks, with another $3bn announced in Q1. Margins are already impressive at 44.6%, and could climb to 48.2% over the coming year. However, there are warning signs.
Revenue dipped slightly from $66bn in 2023 to around $65.85bn. That’s not a disaster, but it’s something to watch.
Risks on the radar
Tariff uncertainty is a concern. Q1 results, released on 29 April, showed HSBC had raised its credit loss provisions to $876m, a massive jump from $202m on the previous quarter. That included $100m set aside for commercial property in Hong Kong.
Pre-tax profits fell to $9.5bn from $12.7bn a year earlier. That’s a big tumble although last year’s figure was inflated by disposals in Canada and Argentina.
Like many banks, HSBC could be squeezed by falling interest rates. The process has started, with net interest income slipping from $8.7bn to $8.3bn in Q1.
If the global economy weakens and central banks cut further, that trend could accelerate. On the plus side, it may reduce impairments.
CEO George Elhedery is now focused on reducing costs and narrowing HSBC’s scope. He’s cutting back its investment banking arm in the West, and wants to reduce the annual cost base by $1.5bn by the end of next year. Returns are stronger in Asia.
Top of my watchlist
Analyst forecasts are mixed. The 17 covering the stock have issued a median one-year price target of 920p. If that proves correct, it would mark a rise of just under 9% from current levels.
Factor in the dividend and that suggests a potential total return of more than 15%. Of course, forecasts are unreliable, especially today, but this one confirms my suspicion that the shares may slow after such a strong run.
HSBC is at the top of my Buy list for when there’s more cash in my trading account. As ever, investors should only consider buying with a long-term view. Right now, no one knows what the short term will bring.
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HSBC Holdings is an advertising partner of Motley Fool Money. Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
