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HSBC (LSE:HSBA) Stock Looks Below Fair Value Despite CFO Change

Simply Wall St · 1d ago

HSBC Holdings has been on a powerful multi year run, and that kind of share price climb naturally raises the question of whether the bank's current valuation is properly backed by the returns it earns on its capital. With the stock now trading around £15.09, investors are increasingly asking what sort of capital efficiency sits behind that price tag.

  • Over the past 5 years, HSBC Holdings has delivered a very large total return of about 4.3x. This puts the focus squarely on whether those gains match the quality and durability of the returns the bank is generating on its capital base.
  • The planned 2027 retirement of long time CFO Pam Kaur, who will keep advising the CEO through 2028, may influence how consistently HSBC manages risk, allocates capital and times major investment decisions. All of these factors feed directly into the returns the group can earn on its equity over time.
  • If you'd rather focus on earnings, this one's for you. See why HSBC Holdings's 16.3x P/E tells a different valuation story.

The stock's next move may depend on whether the returns HSBC Holdings earns on its capital are strong and resilient enough to support where the shares trade today.

If you want to test the same capital returns question you are asking of HSBC Holdings against a wider field, start by scanning 7 high quality undervalued stocks.

Is HSBC Holdings a Bargain on Excess Returns?

The Excess Returns model looks at how effectively HSBC Holdings turns its equity base into profits above the return that shareholders require. Here, the inputs point to a bank with solid profitability on paper. Book Value is £10.08 per share and Stable EPS is £1.92 per share, with those earnings guided by Return on Equity estimates from 16 analysts. Against a Cost of Equity of £0.99 per share, the implied Excess Return of £0.93 per share suggests the firm is projected to earn more on its capital than investors are assumed to demand, with an Average Return on Equity of 16.28% and a Stable Book Value of £11.82 per share based on eight analysts.

The Dividend Discount work under the same framework uses a £0.97 per share dividend, a reported 55.04% payout ratio and a capped long term dividend growth rate of 3.61%, which together indicate an income stream the model treats as sustainable rather than explosive. Pam Kaur’s planned 2027 departure as CFO, and her extended advisory role through 2028, helps explain why the Excess Returns model can still frame HSBC Holdings as a business with consistent capital return assumptions even as leadership transitions are being planned, while the current £15.09 share price leaves the Excess Returns estimate substantially above where the market is trading today. Find out what HSBC Holdings could be worth using our Excess Returns estimate.

The HSBC Holdings Narrative: What Would Justify Today's Price?

Narratives on HSBC Holdings sit between the excess returns puzzle and the share price you see today, since they spell out exactly what would need to happen on growth, margins and earnings for the stock to be worth materially more or less than its current level, and they live on Simply Wall St's Community page. Rather than relying on a single multiple or model line, each scenario lays out its own fair value assumptions so you can track those against future results as they arrive.

Community views on HSBC Holdings are split between one camp that sees more upside and another that thinks the market is roughly on the mark.

Bull case: 18% undervalued

"Rapid expansion of Wealth and new customer flows in Asia, including US$29b of net new invested assets with more than half from Asia…"

Discover why this Narrative puts HSBC Holdings at 18% undervalued.

Bear case: roughly fairly valued

"Heavy reliance on Asia, market volatility, commercial real estate risks, and rising investment costs may erode margins and constrain revenue growth…"

Explore why this Narrative puts HSBC Holdings at roughly fairly valued.

An unresolved question for HSBC Holdings investors

All of this still leaves one crucial angle unfinished, because the checks on HSBC Holdings also flag specific areas of concern that deserve a closer look before you lean too hard on the valuation story. Take a closer look at 3 warning signs before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.