Futu Holdings has had a sharp reset this year, yet both the Excess Returns intrinsic value estimate and the earnings multiple checks still point to the stock trading at a discount to what its fundamentals may support.

• Over the past 3 years, Futu Holdings has delivered a total return of roughly 119.5%, which puts the current pullback in the context of a longer period where shareholders have still come out ahead.
• On the one hand, new products such as the Moomoo Engine can support expectations for future client activity and fee generation. On the other hand, ongoing regulatory investigations and class action lawsuits may weigh on the multiple investors are prepared to pay.
• Futu Holdings screens as undervalued on 5 of 6 checks, so the broader valuation work leans toward the stock being cheap relative to its fundamentals, as shown by its valuation score of 5.

The stock's next move may depend on whether the current discount to intrinsic value and peers is sufficient compensation for the legal and regulatory risks now embedded in Futu Holdings.

Does Futu Holdings Look Undervalued on Excess Returns?

The Excess Returns model looks at how much value Futu Holdings can generate above its cost of equity on each dollar of shareholder capital. For Futu Holdings, the model uses a book value of $293.86 per share and a stable earnings power of $93.40 per share, implying an average return on equity of 21.66% versus a cost of equity of $37.82 per share. That gap feeds into an estimated excess return of $55.58 per share and a higher stable book value assumption of $431.13 per share.

Bringing these inputs together, the Excess Returns framework points to an intrinsic value of about $190.50 per share for Futu Holdings, implying the stock trades at a 49.8% discount and appears undervalued relative to this estimate. The ongoing DOJ and SEC insider trading investigations, along with related class actions, help explain why the market is pricing in a sizeable risk discount even though the model assumes the company can continue to earn returns above its cost of capital.

On balance, the Excess Returns work suggests Futu Holdings stock currently looks undervalued compared with its estimated intrinsic value.

Our Excess Returns analysis suggests Futu Holdings is undervalued by 49.8%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.

Does Futu Holdings Look Undervalued on Earnings?

The P/E ratio is a useful way to look at Futu Holdings because earnings are a key driver of how investors value capital markets platforms. Futu Holdings currently trades on a P/E of 10.5x, compared with about 40.6x for the broader Capital Markets industry and a peer average of 28.7x. That is a large discount to both the sector and closer listed peers, even after accounting for the regulatory and legal clouds around the stock.

The fair P/E ratio implied by the valuation work is 21.9x, roughly double the current level. This indicates that Futu Holdings screens as undervalued on earnings. The gap suggests the market is assigning a heavy risk discount relative to what the company’s profitability profile and sector positioning might support. The stock appears undervalued on its P/E multiple, with the current price implying a much lower earnings valuation than peers and the model’s fair ratio.

The Futu Holdings Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where Futu Holdings' valuation puzzle leaves off by spelling out which combinations of future growth, margins and earnings would need to hold for the stock to be worth materially more or less than today's price on the market. Rather than relying on a single multiple or model output, each Narrative lays out the assumptions behind its view of fair value so you can compare them with the company’s actual results over time.

One of the top community narratives on Futu Holdings: 41% undervalued

"Ongoing international expansion, diverse product offerings, and AI-driven platform upgrades strengthen user growth, engagement, and long-term revenue stability..."

Do you think there's more to the story for Futu Holdings? Head over to our Community to see what others are saying!

The Bottom Line

For Futu Holdings, both the Excess Returns intrinsic value estimate and the earnings multiple work point in the same direction, with the stock screening as undervalued on each approach. The crux is whether the current discount fairly reflects ongoing legal and regulatory risks or leaves room for a re rating if those concerns ease. With broader valuation checks leaning positive, the key question for you is whether the regulatory overhang proves temporary or becomes a more lasting drag on Futu Holdings' profitability and the multiple investors are willing to pay.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.