The HSBC (LSE:HSBA) share price has outperformed the FTSE 100 this year, but it hasn’t outperformed many of its banking peers. Companies like Barclays, Lloyds, and NatWest have surged on the back of an improving business climate and the easing of tight monetary policy.

But where will the HSBC share price go over the coming years? Let’s take a closer look at the forecasts.

It’s undervalued, but only just

According to the consensus of analysts covering the stock, HSBC is undervalued by around 12%. That’s not a huge margin of safety. There are currently seven analysts with Buy ratings, one with an Outperform rating, seven Hold ratings, and one Underperform rating. This is broadly positive, however there have been clearer signals to buy British banks over the last couple of years.

The earnings forecast isn’t exciting

HSBC might have shifted its operations towards higher-growth Asian markets, but the company’s earnings growth forecast really isn’t that exciting. The stock is currently trading at 7.1 times 2023’s earnings, but the firm is expected to be less profitable in 2024 and 2025, with a forward price-to-earnings (P/E) ratio of 7.5 times for both years. Only in 2026 does the P/E ratio fall back to 7.1 times. In short, this is not the smooth upwards earnings trajectory we should be looking for.

The dividend yield is more encouraging

Despite this poor earnings trajectory, the bank’s ‘forward’ dividend yield is currently around 9%. However, that includes a massive one-off dividend that has already been paid this year. The forward dividend for 2025 is 6.9% and this then rises to 7.2% in 2026. The forecast is supported by a relatively strong dividend coverage ratio. This suggests that HSBC is a strong option for investors seeking a passive income.

What’s behind its underperformance?

As noted, the lender’s stock has underperformed peers despite $35bn in buybacks — this normally helps the share price appreciate by reducing the number of shares in circulation.

One reason is likely the bank’s exposure to China, and another is that HSBC is pressure on profit margins, exacerbated by a global rate-cutting cycle. Over the past 16 years, the bank has reduced its headcount by over 100,000, attempting to streamline its sprawling global operations. However, cost-saving measures have largely failed, with operating expenses rising slightly to $8.1bn last quarter.

New CEO, Georges Elhedery, is implementing further restructuring, including merging divisions and eliminating management layers, to achieve $300m in savings. However, this represents only 1% of HSBC’s annual costs, suggesting more aggressive measures may be needed to improve performance relative to competitors.

Concerns about costs, margins, China, and a lack of earnings growth through the medium term are certainly dragging on the share price. However, we’ve seen other banks, namely Barclays, announce strategic reforms that have been very well received by the market. Right now, however, there’s not enough to make me want to add HSBC to my already bloated portfolio of UK banks.