HSBC (LSE: HSBA) shares have delivered huge gains in recent years. Yet the latest numbers suggest the market may still be underestimating the bank’s long‑term earnings power.
It continues to generate strong underlying profits and high returns, supported by rising revenue, firm net interest income and resilient capital strength.
So what sort of gains might we be looking at here?
What’s the share price potential?
Just because a stock’s price has risen substantially does not mean there is no value left in it. The reason is that the two measures mean different things.
Price is simply the number upon which buyers and sellers are happy to trade at any given moment. But value reflects the core fundamentals of the underlying business.
And, crucially for long-term investors’ profits, share prices tend to gravitate to their ‘fair value’ over the long run.
Discounted cash flow (DCF) analysis captures the logic behind this discrepancy. It pinpoints the fair value of any company by projecting future cash flows and discounting them back to the present.
When those forecasts become less certain, investors demand higher returns, which increases the discount rate. DCF models vary according to the basic assumptions used by analysts. But based on my own 8.3% discount rate, HSBC looks 35% undervalued at its current £13.44 price.
That implies a fair value of £20.68 — significantly higher than today’s level. So, given the historical trend for stock prices to move to fair value, this could be a superb buying opportunity if those DCF assumptions hold.
Robust business momentum maintained?
HSBC’s latest results (Q1 2026, released on 5 May) showed total income up 6% year on year to $18.6bn (£13.8bn). The rise was driven by higher Wealth fees, stronger customer activity in Hong Kong and International Wealth and Premier Banking.
Meanwhile, net interest income increased 8% to $8.9bn, reflecting deposit growth and the benefit of reinvesting the structural hedge at higher yields. This is an interest‑rate portfolio that smooths earnings when rates move and continues to support income even as margins stabilise.
Profit before tax excluding notable items held stable at $10.1bn, underlining the bank’s ability to generate high earnings even through periods of macro uncertainty.
Together, these show a bank still producing high, stable profits with strong returns.
A risk is a rapid or deeper‑than‑expected global interest rate‑cut cycle that could squeeze margins faster than the hedge can effectively manage. Another is a downturn in global trade that might push credit impairments higher, so reducing profit stability.
Nevertheless, analysts forecast that HSBC’s earnings will increase by a strong annual average of 10.4% over the medium term.
My investment view
HSBC’s valuation still looks far too low for a bank producing this level of profit and return on equity.
The shares trade well below my estimate of fair value, despite stable earnings, strong capital strength and clear visibility on future returns.
For long‑term investors, that combination of resilience and undervaluation makes the stock look worthy of serious attention. And I, for one, will be buying more of the shares very soon.
I also have my eye on other deeply undervalued stocks in other sectors, several with much higher dividend yields too.
