In the last month the HSBC Holdings plc (LON:HSBA) (HSBA.L) share price has risen by 8%. That’s a better performance than the FTSE 100, which is up by 6% in the same time period.
Clearly, the company is becoming increasingly popular among investors. In my view, this trend could continue over the medium term, with the company’s strategy having the potential to boost its overall performance.
Sure, HSBC’s valuation may appear a little high at first glance. It has a PE ratio of around 16 at the moment. And with its EPS growth rate due to be under 5% next year, the potential for a higher rating may seem to be limited.
But in my view, the company’s stock price could move higher at a faster pace than the wider index. It seems to have the potential to generate improving financial and operational performance over the coming years which could filter down into a higher valuation.
For instance, it is focusing on reinvesting for future growth. With it having significant exposure to the fast-growing Asian economy, this may lead to strong growth opportunities. It could mean that while its operating costs remain high and its cost to income ratio is less impressive than some of its sector peers, the bank is able to generate further capital growth.
On top of its share price growth potential, HSBC also has a dividend yield of over 5%. This remains one of the higher yields in the FTSE 100 and could mean that its total returns are above the index’s long-term average.
Therefore, in my opinion the prospects for the company appear to be positive. It has enjoyed a strong few weeks and while volatility may increase, its overall trajectory could be an upward one over the coming years. As a result, I’m optimistic about its investment potential.