Trying to figure out what to do with HSBC Holdings stock right now? You’re not alone. Whether you’re considering your first position or thinking about taking some profits off the table, it’s hard to ignore a stock that’s run up more than 300% over the past five years and jumped by 23.1% just since January. Yes, there’s been a little turbulence too; HSBC has dipped 3.0% in the last seven days and is down 5.0% over the past month. But that’s almost expected after such a sustained rally, and it may even present a reset for the next phase. Broad market optimism, ongoing restructuring efforts, and shifting global interest rates have all played a part in boosting investor sentiment around HSBC, lending credence to the idea that risk perception is evolving and the growth story might not be over.

Of course, momentum is only part of the picture. The real question is whether that impressive share price is actually justified by HSBC’s underlying value. According to our valuation scorecard, which tallies a point each time a stock looks undervalued by key measures, HSBC clocks in at 2 out of 6. That means it checks the boxes in two categories and comes up short in the rest, a result that’s neither screaming “buy” nor shouting “sell.”

So, how should investors really judge HSBC’s worth? Next, we’ll break down the different valuation methods in play, before revealing one approach that often paints an even clearer picture.

HSBC Holdings scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

The Excess Returns model measures how much profit a company generates above its cost of equity. Essentially, it evaluates how efficiently HSBC Holdings is turning shareholder investments into genuine value. This approach highlights not just profitability, but whether returns beat the minimum rate required by investors. For HSBC Holdings, the current Book Value sits at £9.88 per share, while analysts project a Stable EPS of £1.48 per share, based on weighted future Return on Equity forecasts from 17 experts. With a Cost of Equity of £0.91 per share, HSBC is expected to deliver an Excess Return of £0.57 per share. This reflects an Average Return on Equity of 13.72%, which is healthy for a major global bank. The Stable Book Value, guided by input from 8 analysts, is expected to reach £10.79.

According to this Excess Returns framework, the intrinsic value calculated for HSBC Holdings suggests that the stock is currently undervalued by around 38%. In other words, the market price does not yet reflect the company's ability to generate returns beyond its cost of equity, based on forward-looking estimates.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for HSBC Holdings.

Our Excess Returns analysis suggests HSBC Holdings is undervalued by 38.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

The Price-to-Earnings (PE) ratio is the preferred multiple for assessing profitable companies like HSBC Holdings because it directly connects a company’s market value to its earnings power. For investors, it serves as a quick snapshot of how much they are paying for every pound of the company’s net income. A reasonable PE ratio suggests the market has balanced the company’s growth prospects and risk profile, meaning it has not bid the shares up too high or left them languishing due to low expectations.

At present, HSBC trades at a PE ratio of 12.49x. That is above the industry average for banks, which stands at 10.17x, and also higher than the peer group average of 9.59x. On a superficial level, this may make the stock look a little expensive relative to sector benchmarks.

However, Simply Wall St’s proprietary “Fair Ratio” for HSBC is 9.31x. This custom benchmark adjusts for factors like expected earnings growth, risk, profit margins, market size and more, offering a tailored assessment beyond what peer or industry comparisons alone provide. Unlike blunt comparisons, the Fair Ratio gives a more holistic view, capturing nuances unique to HSBC’s situation.

Comparing HSBC’s actual PE of 12.49x to its Fair Ratio of 9.31x, the shares are trading materially above their estimated fair multiple, indicating the market expects more from the company than fundamentals alone support.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your own story about HSBC Holdings, the reasoning and expectations you bring to the numbers, including your view of its fair value, projected revenue, profits, and margins. Narratives connect what’s happening at a company (like HSBC’s focus on Asian wealth management or digital transformation) to concrete financial forecasts, and then show what you think is a fair price for the shares.

Narratives are easy to use and available right now on Simply Wall St’s Community page, where millions of investors share perspectives and analysis. By laying out your assumptions and comparing your estimated Fair Value with the actual share price, Narratives help you decide whether to buy, hold, or sell. They update automatically when new news or earnings are released. For example, some investors currently estimate HSBC’s fair value at £11.29, targeting robust Asian growth and margin expansion, while others assign just £7.93, concerned about Asian real estate risks and global volatility. Narratives let you clarify your thinking and see where you stand, making your investment moves smarter and more personalized.

Do you think there's more to the story for HSBC Holdings? Create your own Narrative to let the Community know!

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.

Companies discussed in this article include HSBA.L.

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