In this article I am looking at why I reckon HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) is an exceptionally priced stock pick.
Price to Earnings (P/E) Ratio
Based on current earnings projections I reckon that HSBC provides terrific value. With earnings expansion expected to continue over the next two years, the institution was recently dealing on a P/E multiple of 11.3 for 2014 and which drops to 10.3 next year.
A readout of 15 times prospective earnings is generally regarded as the yardstick which dictates reasonable value, criteria which the bank comfortably meets. Indeed, HSBC even moves within a whisker of the bargain benchmark of 10 times next year. By comparison the wider FTSE 100 trades on an average forward multiple of 16.9.
Price to Earnings to Growth (PEG) Ratio
HSBC is also a bargain relative to its predicted growth trajectories for both this year and next. City analysts expect ‘The World’s
Local Bank‘ to follow last year’s 14% earnings growth with meaty advances to the tune of 9% and 10% in 2014 and 2015 correspondingly.
These projections create steamy PEG ratings of 1.3 for this year and 1.1 for 2015 — any reading around 1 is considered stunning value for money.
Market to Book Ratio
As of the end of 2013, HSBC Holdings boasted a book value of £113.3bn after subtracting total liabilities from total assets. This reading produces a book value per share of £6.11, in turn creating a market to book ratio of 1. This reading is bang on the benchmark of 1 which is widely considered excellent value.
Dividend Yield
HSBC has raised the annual dividend in each of the past five years, and analysts expect the payouts to continue rolling in the immediate term — dividends of 52.5 US cents and 56.7 cents per share are anticipated for 2014 and 2015 respectively.
These estimates create blockbuster yields of 5.1% and 5.5%. Not only do these figures make a mockery of the FTSE 100 forward average of 3.2%, but also destroy a reading of 3% for the complete banking sector.
A brilliant banking bargain
I believe that, under the formulae discussed above, HSBC comfortably passes the test as a fantastic value stock. Not only is the bank a tremendous selection for income and growth seekers based on medium term projections, but I believe that the firm’s extensive operations in lucrative Asian markets makes it a brilliant growth contender for coming years.