Prediction: in 1 year the skyrocketing HSBC share price could turn £10k into…

The HSBC (LSE: HSBA) share price continues to defy gravity. It’s up 53% in a year and 235% over five. That begs an obvious question. Can it climb higher from here?

I’m keen to increase my exposure to FTSE 100 banks, which have been on a tear. Right now, I only hold one of them, UK-focused Lloyds Banking Group. I’d like to broaden out, but I’m wondering whether I’ve left it too late. The last thing I want is to pile in just as the growth trajectory flattens out or crashes back to earth.

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I typically target out-of-favour stocks, ideally with chunky yields and low valuations, and wait for sentiment to swing back. That’s exactly why I bought Lloyds in 2023, and it worked beautifully. But the downside of that approach is missing out on a lot of momentum along the way.

HSBC has momentum in spades. The shares jumped another 9% in January alone. What surprises me is that, despite all this, the valuation doesn’t look stretched. The price-to-earnings ratio sits around 14. That’s not demanding. Maybe I should stop fretting, tune out the short-term volatility, and get on with it.

HSBC would sit neatly alongside Lloyds in my portfolio because it’s far more internationally exposed. Roughly half of its income comes from outside the UK, with a heavy emphasis on Hong Kong, China and Southeast Asia. It’s also a broader operation, spanning wealth management, corporate banking and investment banking. That gives it much greater scope for expansion.

The board is also working hard to cut costs and focus on higher-return areas like wealth and international banking. If that strategy delivers, margins and profits could improve further, and the share price power even higher.

The international angle cuts both ways. China worries me most. I suspect its economy may be in worse shape than official numbers suggest. There’s also the worry of geopolitical tensions between Beijing and the West, with HSBC potentially on the front line.

There’s a more general issue too. Banks have enjoyed a golden period thanks to higher interest rates, which widened net interest margins, the gap between what they earn on loans and pay savers. If rates drift lower, that fades.

Yield shrinks, buybacks pause

As the shares have surged, the yield has slipped. Once above 6%, it now sits just under 4%, with forecasts pointing to around 4.3% in 2026. HSBC’s dividend history is patchy, with two brutal cuts during the pandemic, but payouts have since been rebuilt at speed. In 2023, the board almost doubled the total dividend from 32 US cents to 61 cents. Share buybacks have also been generous, although they’re paused for nine months while HSBC buys out minority shareholders in Hang Seng Bank.

Broker forecasts currently produce a consensus one-year share price target of 1,185p. That’s actually below today’s 1,285p. If that played out, it would erode a £10,000 investment to £9,220. Although that 4.3% yield would increase that to £9,650. Consensus banking forecasts are pretty flat now, but this is the first cut I’ve seen. This confirms my suspicion that HSBC shares will slow in the short run, but are still worth considering with a long-term view.

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HSBC Holdings is an advertising partner of Motley Fool Money. Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended 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.

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