The Motley Fool

This is what I’d do about FTSE 100-member HSBC’s share price

Image source: Getty Images.

Over the past three years, FTSE 100-member HSBC (LSE: HSBA) has seen its share price smash the blue-chip index. In the process, it’s provided a total return for investors of 21.7% per annum, compared to the index’s total annual return of 10.2%.

Following this performance, the stock is now trading at one of the highest valuations it’s ever achieved, and a significant premium to the rest of the UK banking sector. Specifically, shares in HSBC are currently dealing as a forward P/E of 12.1, compared to the UK banking industry average of 8.3.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

So today I’m going to try and establish whether or not it’s still worth buying the HSBC share price, or should investors stay away and wait for a better price?

International growth

I think it’s fair to say that HSBC deserves to trade at a premium compared to rest of its UK sector peers as, unlike most of them, incluidng RBS and Lloyds, HSBC is a global banking giant, with operations all around the world.

Meanwhile, its UK-focused peers still have the spectre of Brexit to contend with. We still don’t know what shape the UK’s future relationship with the EU will take and, until we do, I think this uncertainty will continue to rely on UK share prices.

On the other hand, HSBC is much more exposed to global trends, particularly economic growth in Hong Kong, where the bank generates the majority of its profits. With this being the case, I think it’s probably better to compare the company to its international peers, rather than domestic competitors. On this basis, the stock looks appropriately valued. The global banking sector has a P/E in the low double-digits, similar to HSBC’s 12.

Considering the group’s valuation compared to its international peers, I reckon that even after it’s impressive performance over the past three years, the HSBC share price could still be undervalued.

Indeed, I believe HSBC deserves a size premium as it’s the 6th largest bank in the world and second-largest bank outside of China. It’s difficult to say exactly what sort of premium the shares deserve, but I would be a buyer of the stock up to the mid-teens on a P/E multiple basis, so there might be an upside of as much as 20% on offer from current levels.

Market-beating income

There’s more to the HSBC share price than its earnings. The stock also supports a market-beating dividend yield 5.96% at the time of writing. This level of income is highly attractive for income seekers, and the distribution looks safe for the time being. It is covered 1.4 times by earnings per share.

So, if you are looking for income, then I highly recommend considering the HSBC. Such a large dividend yield from one of the world’s largest banking institutions seems too good to pass up.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.