HSBC Holdings plc (LON:HSBA): Has Recent Earnings Growth Beaten Long-Term Trend?
Understanding HSBC Holdings plc’s (LSE:HSBA) performance as a company requires examining more than earnings from one point in time. Today I will take you through a basic sense check to gain perspective on how HSBC Holdings is doing by evaluating its latest earnings with its longer term trend as well as its industry peers’ performance over the same period. View our latest analysis for HSBC Holdings
Did HSBA’s recent earnings growth beat the long-term trend and the industry?
For the purpose of this commentary, I like to use data from the most recent 12 months, which annualizes the latest 6-month earnings release, or some times, the latest annual report is already the most recent financial data. This method allows me to examine different stocks on a more comparable basis, using the most relevant data points. For HSBC Holdings, its most recent earnings (trailing twelve month) is US$5.52B, which, relative to the previous year’s level, has increased by a non-trivial 59.27%. Since these values are somewhat myopic, I have calculated an annualized five-year figure for HSBA’s net income, which stands at US$12.16B This means although earnings growth from last year was positive, in the long run, HSBC Holdings’s earnings have been deteriorating on average.
What could be happening here? Well, let’s take a look at what’s going on with margins and if the whole industry is feeling the heat. Although revenue growth in the last couple of years, has been negative, earnings growth has been deteriorating by even more, meaning HSBC Holdings has been ramping up its expenses. This hurts margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the UK banks industry has been growing its average earnings by double-digit 16.62% in the past year, and 12.64% over the past half a decade. This shows that whatever uplift the industry is benefiting from, HSBC Holdings is able to amplify this to its advantage.
What does this mean?
Though HSBC Holdings’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth isn’t always indicative of a continued optimistic outlook. There may be variables that are influencing the entire industry thus the high industry growth rate over the same time frame. I recommend you continue to research HSBC Holdings to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for HSBA’s future growth? Take a look at our free research report of analyst consensus for HSBA’s outlook.
2. Financial Health: Is HSBA’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 September 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
