Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.
Today I’m looking at HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) to ascertain if its share price has the potential to push higher.
Current market sentiment
The best place to start assessing whether or not HSBC’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.
Unfortunately at present, it would appear that there are several factors hanging over HSBC, which are causing concern amongst investors and for these reasons, the bank’s share price is under pressure.
In particular, one of the main reasons why the market is cautious around HSBC is the outlook and current state of the Chinese economy. Indeed, investors are worried about China’s ever-increasing mountain of debt and a rising number of corporate defaults during recent months. Additionally, there are worries about China’s economic slowdown.
As HSBC is primarily an Asian bank, it is likely the company will feel the impact of a Chinese economic slowdown more than most.
However, outside of Asia HSBC is facing other threats, including the possibility of even greater tax liabilities here within the UK and capital adequacy stress-tests. Some analysts have also suggested that HSBC has a $100bn hole in its balance sheet and the bank has been mis-reporting profits.
These are serious allegations and have been dismissed by HSBC’s management. Nevertheless, analysts believe that HSBC’s underlying, core banking business is actually growing at a slower rate than stated within results. As a result, analysts have started to question HSBC’s growth forecasts, questioning whether or not they are too optimistic.
Upcoming catalysts
HSBC’s main catalyst going forward is likely to be the state of the Chinese economy. As HSBC has most of its operations within Asia, if Chinese growth accelerates then the bank will benefit from higher levels of business. On the other hand, if Chinese growth continues to slow, HSBC will suffer.
Still, if HSBC’s management can convince investors that the bank can continue to grow, despite China’s economic slowdown, then investors will take a more positive view on HSBC’s future.
With this in mind, it would appear that HSBC’s main catalyst going forward will be the company’s first quarter interim management statement, which is slated to be released on the 7th of May.
Additionally, there has been some talk that HSBC may seek to return capital to shareholders via a share buyback, which would send the bank’s shares skywards.
Valuation
Due to the above concerns, HSBC is now trading at one of the lowest valuations in the banking sector.
The bank’s shares trade at a forward P/E of 11 and are currently support a 5% dividend yield. In comparison, the wider banking sector trades at a P/E of 25 and supports an average dividend yield of 3.4%.
Foolish summary
Overall, the market is unsure about HSBC’s future prospects but the bank’s low valuation is attractive. So, I feel that there is still time to buy HSBC.
