Look at HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) and what do you see?
Well, for one thing you see a share price that’s dropped 13% over the past 12 months to 628p, giving us a forward P/E of only around 11.5 for the year to December 2014. That’s some way below the FTSE’s long-term average of 14, and it’s for a share offering dividend yields of better than 5%!
What gives?
The fear, of course, is China. Hong Kong is HSBC’s home market, and it accounted for more than a third of 2013’s profits with the rest of the Asia Pacific region clocking up another third — and Europe and the Americas contributing less than a quarter to the bottom line.
China is facing a bit of a property boom at the moment, and credit markets are starting to get a little too perky for some people’s liking — and the parallel with the West’s recent travails is obvious.
What crisis?
But the great and good of the City aren’t expecting any calamities in their current forecasts for HSBC, so what might it be worth in another five years?
Those who are sticking their neck out suggest earnings per share (EPS) of 90p could be on the cards by 2018 — with the caution that such far-ahead figures are little more than guesswork at the moment, but this is just for fun.
Should the firm’s P/E valuation recover from its current low and reach the market average by then, we could be looking at a share price of 1,260p — almost precisely double today’s level!
What about dividends?
Forecasts suggest we could add around 195p as cash income per share over five years, taking the total stash up to 1,455p — and wouldn’t you like to turn every £6.28 you invest today into £14.55 in five years time?
Now, we really do have to temper that bullishness with the possible effects of a Chinese slowdown, and it is a genuine worry — just because the analysts haven’t figured it into their prognostications doesn’t mean it won’t happen. But on balance, well, if you want to earn high rewards you do often need to take a bit more risk than usual!