At such a low cost compared to historically, it might seem tempting to consider the HSBC (LSE:HSBA) share price a bargain. However, is that really the case?
The firm’s shares have had an essentially flat year, with a total 1% gain in price over the period. But its earnings per share have been growing nicely, from £0.14 in 2020 to £1.13 in the last 12 months.
I’m taking a deeper look to see whether I think I’d profit long term if I bought some of its stock at the present valuation.
2024 company update
HSBC has been actively buying back its own shares, an initiative that was first announced in October 2023. It has repurchased 338,048,369 ordinary shares, a total of approximately $2.6bn.
The firm has also successfully integrated Silicon Valley Bank UK, famously acquiring it for just £1 in 2023 after its US parent company nearly collapsed. The business is now called HSBC Innovation Banking.
Additionally, the company has sold its French retail banking business to My Money Group. This is helping HSBC to make strategic shifts in Europe, attempting to withdraw from less profitable markets. Instead, it will be focusing its attention on Asia.
A closer look at the valuation
HSBC’s share price could be troubling at the moment, with a general weakness in the valuation of British banks. This raises concerns within the government about its ability to lend to the larger economy.
Now the UK Chancellor is holding a summit, and HSBC will be present. This is in an effort to stimulate more confidence in UK banking and encourage much needed growth in the sector.
However, one of the strong points of its valuation is its price-to-book ratio of 0.8. That means the company is selling for less than its total equity value. As I’m a value investor, it’s tempting for me to see that as a compelling reason to buy some of the shares.
Further risks I’m considering
The world is currently experiencing interest rate shifts, and there’s been a reduction in inflation as a result. Unfortunately, this has slightly raised the possibility of lower or negative growth in 2024.
With this rise of a recession risk, HSBC’s operations and financials could take a hit.
Also, while shares were generally popular in 2023, if inflation doesn’t lower to its target rate, central banks might not cut rates as aggressively. As such, bond yields could increase and become more popular, and shares could have a lacklustre 2024.
It’s not for me
I consider HSBC a household name, and it’s a relatively well-liked investment, particularly for its healthy dividend yield of around 7% at the moment. However, I’m not so sure it’s the best play for me to make right now because of the risk in its share price.
Personally, with a weak geopolitical picture with rising pressures between Russia, China and the US, I’m moving towards a risk-neutral portfolio.
HSBC just doesn’t make the cut for me.
