The HSBC (LSE: HSBA) share price rose to its highest level in four months yesterday at 442p following its third quarter earnings release. And it continues to inch up in today’s trading as well. As a result, in the past year, the FTSE 100 bank’s share price has risen more than 35%. I think the stock can rise more in the coming months, or even double. The operative word here is can. There are several reasons why I believe that.
Still below its pre-pandemic level
The first reason is that the HSBC share price is still far lower than its pre-pandemic level. There is no denying that it has come a long way in the past year, especially since the stock market rally of last November. But it is still some 35% below the levels it was at in mid-February last year, before the Covid panic started. This is in stark contrast to the fact that many FTSE 100 stocks have reached their pre-pandemic levels and even surpassed them.
After its results today, I reckon there is now a good chance that it can continue to rise towards these levels. The bank’s post-tax profits rose by over 90% in the third quarter compared to the same time last year. They more than doubled in the first nine months of the year.
HSBC share price is dirt-cheap
In fact, after today’s results, my estimates suggest HSBC’s price-to-earnings (P/E) ratio is at a little under 10 times. This compares favourably to the FTSE 100 average P/E of almost 20 times cited by Bloomberg. This too indicates that there is opportunity for its share price to rise further as investors seek out undervalued stocks. In fact, if HSBC’s share price were to increase to the average FTSE 100 ratio, its price would more than double according to my estimates. But that would be only if the current market mood stays as it is.
Non-trivial dividends
Its dividends are decent too. They are not big enough to put it in the running for a major income stock, but at 3.6%, its yield is higher than the average FTSE 100 yield of 3.4%. This does give it a slight edge over other potential growth stocks with little or no dividends to speak of. The bank has done a fair bit of work to streamline its operations as well. This includes selling off some of its interests in the US and focusing more on its lucrative Asian market.
Risks to HSBC
There are risks to the stock too, of course. A big one is the Chinese economy, which is slowing down now. And Evergrande’s example shows that there could be more pain in store if the recovery falters and the Chinese government is unable to support growth for much longer. The bank also believes that the threat of Covid-19 still persists. And we should watch out for this factor carefully as the winter months loom.
My takeaway
Last month I had said that there is upside to the stock, but was not sure if it could reach 600p. After its results, considering the market mood and the general environment of recovery, I think that it can get there and even exceed it. As optimistic as it sounds, my rough estimates suggest that it could even double. HSBC is a buy for me now.