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HSBC Still Has The Opportunity To Grow

|Includes: BAC, C, HSBC Holdings PLC (HSBC)


HSBC Holdings PLC (NYSE: HBC), with headquarters in London, England, began in 1865 as a financial arm for the growing trade between India, Europe and China. It was named after its founding member, with the initials standing for Hong Kong and Shanghai Banking Corp. Ltd. It would go on to be the first bank established in Thailand, in 1888, and the foremost financial institution in Asia. Today, HSBC is one of the world's leading financial-services organizations.

HSBC shares have been on a roller-coaster ride in 2013, posting consistent increases and decreases in value every month over the past 52 weeks. In September, Mizuho reiterated its "neutral" rating on the company's stock, while Grupo Santander analysts have downgraded its shares to "underweight". Despite its unstable 52-week performance, HSBC managed to start the most recent quarter on a positive note, with shares increasing by $0.40 (0.74%) at the market's close on Oct. 1.


In the five-year period ending Dec. 12, the company's revenue decreased 2.69%, compared with annual net income, which rose 36.66%. The company also saw a 23.80% increase in earnings per share, while experiencing a fall of 7.44% in cash flow. Capital spending decreased by 7.04%.

While it had revenue of $62.95B at end-2012, HSBC reported a decrease in sales of 5.22%. HSBC's balance sheet for the quarter ending June 30 showed good numbers, with total deposits of $867.79B and total debt of $179.67B. As of Oct. 1, the company had an operating profit margin of 9.45, with a net profit margin of 14.06. The return on assets was $0.54, and the return on total capital was $3.09.

The biggest issue for the company has been its unsteady performance in the stock market. The 52-week range ending Sept. 30 showed a share-price low of $46.83 and a high of $58.71. On Sept. 24, HSBC reported that its underlying pre-tax profit had increased by 47% and its bottom-line profit by 23%.

Bad for Good?

As the end of 2013 approaches, the U.K. economy faces various woes, which likely will affect HSBC's market performance. In 2008, the government had to rescue a number of banks and other financial institutions because of financial problems in the U.S.. Although the British government is taking steps to forestall further hits to the economy, the result of its efforts remains uncertain. However, even in the current situation, some pundits are still encouraging investors to purchase HSBC stock.

In a recent article, the Motley Fool provided five reasons for purchasing HSBC stock during the current economic downturn. According to article, "The state of high streets, house prices, housing activity, GDP data and whatever else have little bearing on its success." With a new focus on emerging markets in Asia, and eggs in many other baskets, HSBC still has the opportunity to grow.

Disclosure: I am long C.