Is the HSBC Share Price Too Cheap Ahead of Earnings

Summary:
• What is the outlook of the HSBC share price ahead of earnings? We explain whether the stock is too cheap and whether it is a buy or sell.

The HSBC share price is holding steady close to its highest level this month ahead of its earnings that are scheduled for Tuesday this week. The stock retreated by about 2.53% on Friday and is trading at 523p, which is slightly below last week’s high of 541p. The shares are still about 20% above the lowest level in February this year.

HSBC earnings preview

HSBC and other London banks like Natwest and Lloyds Bank will be in the spotlight this week as investors focus on their earnings. These results will come a few days after we received mixed results from leading American banks like JP Morgan, Citigroup, and Goldman Sachs. Analysts have lower expectations for HSBC because of the ongoing Covid-19 crisis in China, which is its key market. The firm generates about 64% of its revenue from Asia.

Analysts polled by Reuters expect that HSBC’s pre-tax profit collapsed by 36% to $3.7 billion in Q1. Most banks have reported a sharp decline in profitability because last year’s Q1 benefited from the impairments that were set aside in 2020 as the pandemic started. Its revenue is expected to have grown marginally.

So, is HSBC a good investment? There are several catalysts for the HSBC share price. First, the company will benefit as American interest rates rise. For one, it has a huge presence in Hong Kong, which has pegged its currency to the US dollar. As such, higher rates in the US will lead to higher rates in Hong Kong. 

Second, the bank is significantly cheaper than its peers, based on multiple factors like price-to-book and price-to-cash flow. The PEG ratio is also at a discount. Further, the Asian economy is expected to have a stronger economic recovery in the coming years.

HSBC share price forecast

The daily chart shows that the HSBC stock price retreated slightly on Friday as investors refocused on the upcoming earnings. It remains slightly above the 25-day and 50-day moving averages. Also, it seems like it is forming a double-top pattern, which is usually a bearish sign. The MACD has moved slightly above the neutral level. 

Therefore, the stock will likely pull back slightly after its earnings, and then it will resume the bullish trend. The next key support level to watch will be at 500p.