Is HSBC a Cheap Stock to Buy After Falling 18%?

HSBC Holdings plc (SEHK: 5) is one of the largest banking and financial services organisations in the world, serving more than 39 million customers.

At its current price of HK$57.85 (as at the time of writing), HSBC Holdings shares are trading at 18% below its 52-week high price of HK$70.50. This raises a question: Is HSBC Holdings cheap now? This question is important because if the firm’s shares are cheap, it might be a good time for investors to pick some up on the cheap.

Clearly, there is no easy answer to the above question. However, we can still get some insight by comparing HSBC’s current valuations with the market’s valuations. The three valuation metrics I will focus on are; the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield.

I will be using the iShares MSCI Hong Kong Index Fund (NYSEARCA: EWH) as a proxy for the market; the iShares MSCI Hong Kong ETF is an exchange-traded fund that tracks the MSCI Hong Kong Index, a market-cap-weighted index made up of a diverse selection of small-, large- and mid-cap stocks primarily traded on the Hong Kong Stock Exchange.

The numbers

HSBC currently has a PB ratio of 0.8, which is lower than that of the iShares MSCI Hong Kong ETF’s PB ratio of 1.3. Similarly, its PE ratio of 11.7 times is lower than the ETF’s PE ratio is 13.1.

In addition, the company’s dividend yield of 6.9% is over double that of the market average’s dividend yield of 3.0%. The higher the dividend yield, the lower the valuation.

Key takeaway

In all, I think HSBC Holdings is trading at a low valuation as compared to the market average, given its low PB and PE ratios, as well as its high dividend yield.

In particular, dividend investors might find the company a solid candidate to study further given its high dividend yield.