As a banking and financial services firm, HSBC (LSE:HSBA) operates all over the world. A FTSE 100 constituent, it prides itself on consistent historical results. With rising interest rates in many countries, is it a good idea for me to buy it at the current HSBC share price? Although there may be difficulties ahead, this may also be a bargain stock to add to my long-term portfolio. Let’s take a closer look.
Rising interest rates and the HSBC share price
Recently, many countries around the world have been raising interest rates. This is important for a business like HSBC, because it determines how much it can charge for mortgages and loans.
In March, the Bank of England increased interest rates to 0.75% from 0.5%, with further hikes expected.
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This comes as we emerge from the pandemic and in the US, the Federal Reserve is pursuing similar policies.
The general direction of travel may be positive news for the HSBC share price, as it could benefit from the higher costs of borrowing borne by customers.
Despite this, the cost-of-living crisis and inflation may deter many from taking on debt in the first place. As wages continue to lag inflation, loans and mortgages may be too risky for a lot of potential customers.
This may mean that demand for these products declines. However, I see this as a fundamentally short-term issue that should subside in the near future.
Historical results underpinning a cheap stock?
The company is underpinned by solid historical results. Between 2017 and 2021, revenue increased slightly from $63.7bn to $63.9bn. Furthermore, profit before tax rose from $17.1bn to $18.9bn.
In 2020, profit before tax was only $8.7bn. It is therefore encouraging to see such a swift and strong return by this firm after the pandemic.
What’s more, earnings-per-share (EPS) grew from ¢48 to ¢62 between 2017 and 2021. By my calculations, this means that HSBC has a compound annual EPS growth rate of 5.2%. This is both strong and consistent.
In addition, for the three months to 31 December 2021, revenue increased by 2% and profit before tax more than doubled year on year.
It should be noted, however, that past performance is not necessarily an indicator of future performance.
The HSBC share price may also be cheap at current levels. Using forward price-to-earnings (P/E) ratios, found by dividing the share price by forecast earnings, HSBC registers 9.51.
This is lower than another global competitor, Bank of America, that has a forward P/E ratio 11.56. It is good to know that I may be getting a bargain by buying at the current HSBC share price. It currently trades at 521.9p.
Overall, the current environment may favour this company. As interest rates rise, this global player may benefit. While there are potential risks, the prospect of getting myself a bargain is too good to miss. I will be buying shares soon.
