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Is HSBC Holdings (LSE:HSBA) Below Fair Value After Its RedCoin Launch?

Simply Wall St · 2d ago

HSBC Holdings has delivered very strong gains over the past few years, which puts a spotlight on whether the business is now earning enough on its capital to support where the shares trade today.

  • Over 5 years, HSBC Holdings has returned about 363.6%, which makes the question of how effectively it turns shareholder capital into profits much more important for anyone looking at the current price.
  • Recent moves into areas such as the HKD-pegged RedCoin stablecoin and a planned return to India’s equity broking market can influence how much capital the bank needs to commit and the returns it may earn on those new investments.
  • If you'd rather focus on earnings, this one's for you. See why HSBC Holdings's 15.9x P/E tells a different valuation story.

The issue now is whether the returns HSBC Holdings earns on its capital are strong enough, and durable enough, to justify the valuation implied by today’s share price.

To see how HSBC Holdings' recent RedCoin move and push back into India compare with other bank led digital asset plays, it can help to line them up against 21 cryptocurrency and blockchain stocks

Is HSBC Holdings Still Cheap on Excess Returns?

The Excess Returns model looks at how efficiently HSBC Holdings turns each pound of equity into profit above its own funding cost. On the latest inputs, book value is £10.08 per share and the stable book value used in the model is £11.81. Stable EPS is set at £1.92 per share against a cost of equity of £1.01, which implies an excess return of £0.91 per share built into the framework and an average return on equity of 16.22%.

Put simply, the model assumes HSBC Holdings can keep earning comfortably more on shareholder funds than it pays to access that capital. This supports an intrinsic value that the Excess Returns projections indicate is substantially above the current £14.72 share price. Because the RedCoin launch creates extra questions around future capital needs and regulatory constraints, the recent move helps explain why the market might still price HSBC below what these excess returns would justify. Find out what HSBC Holdings could be worth using our Excess Returns estimate.

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

Simply Wall St Narratives take the valuation puzzle around HSBC Holdings and spell out what path of future growth, margins and earnings would need to play out for the shares to be worth materially more or less than today’s price. They sit on the stock’s Community page for you to explore. Rather than relying on a single multiple or model result, each narrative lays out the assumptions behind its view of fair value so you can compare those expectations with HSBC Holdings' actual numbers as they are reported.

Community views on HSBC Holdings split into one group that sees more upside in the current setup and another that is far more cautious on how much is already priced in.

Bull case: roughly fairly valued

"Disproportionate investment in digital transformation, including AI driven efficiency gains and digital onboarding, will generate structural cost reductions, directly improving the cost to income ratio..."

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

Bear case: 43% overvalued

"The planned privatization of Hang Seng Bank concentrates earnings and capital in Hong Kong at a time when commercial real estate credit quality remains under pressure..."

Explore why this Narrative puts HSBC Holdings at 43% overvalued.

HSBC Holdings’ valuation still hinges on who is steering the ship

Balance sheets and models say a lot about HSBC Holdings, but the real question is how the people in charge are chosen, rewarded and aligned with you as a shareholder. See who runs HSBC Holdings and how they are paid.

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.