The HSBC share price leapt by over 13% in October. Would I buy now?

Today is Halloween, supposedly the scariest night of the year. But October has been a calm month for UK shareholders. On Friday, the FTSE 100 closed at 7,237.57, gaining 151.15 points (2.1%) over the month. However, some Footsie shares did far better than others this month. And the HSBC (LSE: HSBA) share price was one of October’s star stocks.

The share price soared in October

The HSBC share price has had an outstanding October. It closed the month at 441.5p, up 51.45p. That’s a rise of 13.2% since 30 September. Over the past month, HSBC is the #3 best-performing stock in the FTSE 100. Other bank shares also beat the Footsie this month, but HSBC was the standout star. That said, the mega-bank’s shares went into steep decline for months after hitting a 52-week high of 462.55p on 28 May. On 21 September, the stock closed at 359.75p, down 102.8p in a little over four months. That’s a slump of 22.2% since its spring peak.

Nevertheless, HSBC has also beaten the Footsie over one year, leaping by 36% versus 30% for the wider index. But over five years, the stock has dived by more than a quarter (-25.8%), while the FTSE 100 has eked out an 8.1% gain. At the current HSBC share price of 441.5p, the Anglo-Asian giant’s stock is up 22.7% since its 21 September low. Today, HSBC is valued at £90.2bn, making it a FTSE 100 super-heavyweight (#4 in the Footsie by size).

HSBC released results on 25 October

I can see one simple reason why HSBC stock surged over the past six weeks. I suspect that investors night have been buying in anticipation of its latest figures. The group released its third-quarter results on Monday, 25 October. For Q3, it reported pre-tax profits of $5.4bn (£3.9bn). These were boosted by the bank releasing $700m of previous loan-loss reserves made during the Covid-19 crisis. Also, the group announced a $2bn share buyback programme, which might support the shares going forward. Thus, these solid numbers may have helped to support the stock’s recent surge. 

Another reason for the recent improvement in the share price is growing expectations for rate rises in the UK and US. With inflation at multi-year highs on both sides of the Atlantic, markets are factoring in higher interest rates next year. And as rates rise, these improve banks’ net interest margins, lifting profits and earnings.

Would I buy this stock today?

I don’t own HSBC stock, but would I buy it today? At first, the stock’s fundamentals don’t look too expensive to me. HSBC trades on a trailing price-to-earnings ratio (P/E) of 10.9 and an earnings yield of 9.1%. On a forward, basis, the P/E drops to around 8 and the earnings yield rises to 12.5%. Also, the dividend yield of 3.6% a year might seem attractive, but it’s actually lower than the FTSE 100’s forecast 4% for 2021.

I like HSBC’s business model, which involves focusing on fast-growing Asian economies (notably China and Hong Kong). But the group keeps tripping over regulatory hurdles and has been fined tens of billions of dollars in recent years. Also, it’s right in the middle of the ongoing war of words between Communist China and the West. Thus, the bank faces potentially damaging political risks. For these reasons, I wouldn’t buy HSBC stock today.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.