£5,000 invested in HSBC shares 1 year ago is now worth…
HSBC (LSE:HSBA) shares are up 42% over the past 12 months. Thatâs clearly a decent return for any investor who took the opportunity.
This means that £5,000 invested one year ago is now worth £7,100. Whatâs more, investors would have received a rather large dividend. The yield would have been something in the region of 7%. Thatâs really rather considerable.
Interestingly, some of its FTSE 100 peers have outperformed this with very strong returns in the banking sector.
What about now?
So is HSBC a good investment opportunity today? Well, for me, itâs all about the data. Here, weâre using analysts’ consensus forecasts.
HSBCâs valuation outlook points to a phase of steady earnings growth and consistent capital returns through 2027. The forward price-to-earnings (P/E) ratio is projected at 10.4 times for 2025, before easing to 9.08 times in 2026 and 8.31 times in 2027.
Earnings per share (EPS) is forecast to rise from $1.25 in 2025 to $1.55 by 2027, reflecting an average annual growth rate of about 11%.
The price-to-book (P/B) ratio’s set to moderate from 1.27 times in 2025 to 1.14 times in 2027. This suggests improving business net worth alongside earnings momentum.
Dividend projections remain strong and progressive. The annual payout’s anticipated to increase from $0.69 per share in 2025 to $0.79 in 2027. This equates to forward dividend yields of roughly 5.3%, 5.6%, and 6.2% across the respective years.
The payout ratio’s expected to edge down from 55% in 2025 to just over 51% by 2027, suggesting that dividend growth will continue to be comfortably covered by rising profits.
What does it all mean?
Valuations should always be viewed relative to peers. Personally, I believe that when adjusted for growth and dividends, the FTSE 100 banks are pretty much trading in line with each other.
This is interesting, because a few years ago that was the case. UK-focused banks such as Lloyds and Barclays traded at a discount to their growth market-focused peers HSBC and Standard Chartered.
And while I think these big banks have the capacity to deliver steady returns to shareholders in the coming years, Iâve actually moved my attention to a smaller UK bank.
Arbuthnot Banking Group is much smaller and is perceived therefore to carry more risk. Itâs also less diversified by the nature of its size. However, owing to the arguably more resilient nature of its clients, it may outperform relative to its valuation.
It trades at 8.1 times forward earnings for this year and this fall to 5.6 times for 2027. Thatâs stronger than all its peers. Likewise, the dividend yield is very strong. It sits at 5.9% for the year ahead rising to 6.8% by 2027. The payout ratio also looks good, sitting around 48% and then falling to 38% by 2027.
Whatâs more, the bankâs P/B ratio is also around 0.53 â less than half of HSBC. However, investors need be remain cautious due to factors like less diversification and a higher spread between the buying and selling price.
Nonetheless, I believe both HSBC and Arbuthnot are worth considering. The former may offer a steadier ride. The latter arguably has more potential for appreciation.
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HSBC Holdings is an advertising partner of Motley Fool Money. James Fox has positions in Arbuthnot Banking Group Plc, Barclays Plc, and Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Lloyds Banking Group Plc. 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.
