SKN | Has HSBC Holdings (LSE:HSBA) Risen Too Far After Strong Multi-Year Share Price Gains?

Takeaways

• HSBC’s multi-year rally has lifted valuation multiples well above sector averages.

• Excess Returns analysis still points to material upside versus the current share price.

• The investment case now hinges on whether elevated profitability can be sustained as rates and competition evolve.

Strong Performance Forces a Valuation Check

HSBC Holdings are trading around £13.08, capping a powerful run that has delivered gains of roughly 67% over the past year and very substantial returns over five years. Such performance naturally raises the question of whether the market has already priced in most of the upside, or whether fundamentals still justify further appreciation.

HSBC’s rally reflects a broader re-rating of large global banks as earnings resilience has lasted longer than many expected. Higher interest rates, cost discipline, and a growing contribution from wealth and international banking have all supported sentiment. Against that backdrop, valuation becomes the key differentiator between momentum and mispricing.

Excess Returns Point to Remaining Upside

One way to assess value is through the Excess Returns model, which focuses on how much profit the bank can generate above its cost of equity. Using a book value of £9.94 per share and a stable earnings estimate of £1.67 per share, HSBC’s average return on equity is estimated at 14.85%. After accounting for a cost of equity of £0.93 per share, the model implies excess returns of about £0.74 per share.

Extending these assumptions forward with a stable book value of £11.21 per share produces an intrinsic value estimate of roughly £18.36. Relative to the current price, this suggests the shares could still be undervalued by close to 29%, even after the strong rally. This framework argues that HSBC’s profitability is sufficiently robust to support a higher long-term valuation, provided returns remain above the cost of capital.

P/E Multiples Tell a More Cautious Story

A more conventional check paints a less forgiving picture. HSBC trades on a price-to-earnings ratio of about 18.5x, well above the broader banking industry average and its peer group. Simply Wall St’s Fair Ratio for HSBC sits closer to 11.4x, implying that the market is currently paying a premium for the bank’s earnings stream.

This divergence suggests investors are assigning extra value to HSBC’s scale, international diversification, and perceived earnings durability. The risk is that if margins compress faster than expected, or competition intensifies, that premium could narrow quickly.

Beyond Models: The Narrative Question

Reconciling these two views comes down to narrative. If HSBC can sustain returns on tangible equity in the mid-teens through a mix of wealth growth, disciplined costs, and resilient net interest income, the excess-returns case supports further upside. If, however, rate cuts accelerate, deposit competition rises, or regulatory and geopolitical pressures weigh on profitability, today’s higher multiples may prove difficult to defend.

This is where building a personalised valuation narrative becomes critical. Different assumptions about future margins, growth, and risk can legitimately lead to very different fair values, even when starting from the same data.

Bottom Line

HSBC’s share price has undoubtedly come a long way, and headline multiples now look demanding compared with the sector. Yet, on a returns-based framework, the stock does not appear fully priced if current profitability can be maintained. For investors, the decision is less about whether HSBC has rallied too far, and more about confidence in its ability to defend elevated returns in a shifting rate and competitive environment.

For a confidential discussion on how global bank valuation premiums, interest-rate sensitivity, and sustainability of excess returns can be assessed within a diversified portfolio allocation, contact our senior advisory team.