What should I look into before investing in the finance sector?

This is specifically about banks like HSBC, Lloyds, etc.

I’ve been looking at HSBC stats and it has a low PE ratio compared to a lot of other companies I’ve invested in. It has a high dividend yield with a good payout ratio although it hasn’t raised its dividend in a couple years.

I’ve also looked into Barclays which also has a low PE ratio and a good dividend payout and payout ratio although seems unstable since it has to cut its dividend recently. It also has a lot higher debt to revenue ratio compared to HSBC.

I could keep going on with Lloyds, Metro bank and so on. But I’m not sure if I’m looking at the right metrics for banks.

Leverage/debt is not a metric you should be looking at, since accumulating debt is their business model.
Banks can’t really be priced with common valuation tools, I would not even try. No normal metric applies to them and they are basically a black box.

Below is a review of HSBC that might give you some ideas:


Thanks for the link. I’ll obviously have to investigate more into it before I make a decision although it has given me good insight.

With banks most of their revenue comes from recurring business in the same products. HSBC is slightly different as, unlike Lloyd’s, it has a very successful global investment bank within it.

Things to look out for should be metrics around customer loyalty. How many customers purely use the bank for banking versus how many use multiple etc. Barclays is the most successful bank in the UK in that respect with a highly popular app, credit card scheme and so on.

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