HSBC (LSE:HSBA) shares are up 42% over the past 12 months. That’s clearly a decent return for any investor who took the opportunity.
This means that £5,000 invested one year ago is now worth £7,100. What’s more, investors would have received a rather large dividend. The yield would have been something in the region of 7%. That’s really rather considerable.
Interestingly, some of its FTSE 100 peers have outperformed this with very strong returns in the banking sector.
What about now?
So is HSBC a good investment opportunity today? Well, for me, it’s all about the data. Here, we’re using analysts’ consensus forecasts.
HSBC’s valuation outlook points to a phase of steady earnings growth and consistent capital returns through 2027. The forward price-to-earnings (P/E) ratio is projected at 10.4 times for 2025, before easing to 9.08 times in 2026 and 8.31 times in 2027.
Earnings per share (EPS) is forecast to rise from $1.25 in 2025 to $1.55 by 2027, reflecting an average annual growth rate of about 11%.
The price-to-book (P/B) ratio’s set to moderate from 1.27 times in 2025 to 1.14 times in 2027. This suggests improving business net worth alongside earnings momentum.
Dividend projections remain strong and progressive. The annual payout’s anticipated to increase from $0.69 per share in 2025 to $0.79 in 2027. This equates to forward dividend yields of roughly 5.3%, 5.6%, and 6.2% across the respective years.
The payout ratio’s expected to edge down from 55% in 2025 to just over 51% by 2027, suggesting that dividend growth will continue to be comfortably covered by rising profits.
What does it all mean?
Valuations should always be viewed relative to peers. Personally, I believe that when adjusted for growth and dividends, the FTSE 100 banks are pretty much trading in line with each other.
This is interesting, because a few years ago that was the case. UK-focused banks such as Lloyds and Barclays traded at a discount to their growth market-focused peers HSBC and Standard Chartered.
And while I think these big banks have the capacity to deliver steady returns to shareholders in the coming years, I’ve actually moved my attention to a smaller UK bank.
Arbuthnot Banking Group is much smaller and is perceived therefore to carry more risk. It’s also less diversified by the nature of its size. However, owing to the arguably more resilient nature of its clients, it may outperform relative to its valuation.
It trades at 8.1 times forward earnings for this year and this fall to 5.6 times for 2027. That’s stronger than all its peers. Likewise, the dividend yield is very strong. It sits at 5.9% for the year ahead rising to 6.8% by 2027. The payout ratio also looks good, sitting around 48% and then falling to 38% by 2027.
What’s more, the bank’s P/B ratio is also around 0.53 — less than half of HSBC. However, investors need be remain cautious due to factors like less diversification and a higher spread between the buying and selling price.
Nonetheless, I believe both HSBC and Arbuthnot are worth considering. The former may offer a steadier ride. The latter arguably has more potential for appreciation.
