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Is it the perfect time for me to buy HSBC shares?

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Scene depicting the City of London, home of the FTSE 100
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HSBC (LSE: HSBA) shares have recovered fairly well since their lows last September. The shares are currently priced at 425p, and have already risen 13% this year, as well as being up 12% year-on-year. This has mainly been driven by strong financial results, alongside strategy changes within the business. Nonetheless, the shares are still down around 28% from their pre-pandemic price and problems do still face the bank. As such, should I buy HSBC shares now or are they overpriced?

Recent financial results

The recent HSBC Q1 trading update was fairly positive, with profit after tax up 82% to $4.6bn from the year before. Such a strong performance was primarily because expected credit losses and impairment charges fell for the quarter. Indeed, the bank set aside just $400m for bad debt, compared to a $3bn charge the year before. This meant that profits were above analysts’ expectations.

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The outlook for the bank is also looking more optimistic than it was at the start of the pandemic. For example, it expects mid-single-digit percentage growth in consumer lending for the year. Of course, this is dependent on how quickly countries can recover from the pandemic and the new variants may hinder the economic recovery. Even so, if the economy can bounce back as quickly as many expect, the HSBC share price is likely to respond positively.

Unfortunately, the outlook for HSBC is still uncertain though. As such, unlike many other banks, such as Barclays and Lloyds, HSBC has not yet restored its dividend. Although it will consider paying a dividend after its half-year results in August, this is not certain. Restoring a dividend is often a strong sign of confidence. So I am slightly concerned that HSBC decided not to pay one after its recent results.  

Recent strategic moves

Despite my worries about HSBC shares, I have been impressed with the group’s recent strategic moves. Initially this included exiting retail banking in the US, where the bank had long struggled to compete with the big US institutions. HSBC will retain only high-net-worth customers in the US in an attempt to simplify the business and maximise profits.

More recently, it also managed to sell its French retail banking network to the private equity group Cerberus. Although this deal will see HSBC book a pre-tax loss of around $2.3bn, and a $700m charge from reduction in goodwill, it makes sense to me as the French business had consistently underperformed. Indeed, it means that the bank will be able to focus more heavily on Asia, where it generates the majority of its profits. After these strategic changes, I feel HSBC shares are more tempting.

Am I buying HSBC shares?

But are they tempting enough for me to buy? No. Right now, I feel that other banks, in particular Lloyds and Barclays, are far more appealing investment opportunities than HSBC. Despite the promising simplification of its business, HSBC still has a long way to go. The geopolitical tensions in China may also hinder the bank’s plans. Furthermore, at around 425p, HSBC shares are no longer as discounted as they once were. Consequently, I feel that there are a number of better opportunities in the market.

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Stuart Blair owns shares in Barclays. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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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