• If you are wondering whether Futu Holdings at around US$96.64 is pricing in too much optimism or not enough, this article walks through the key valuation angles that matter for you.
• The stock has been volatile recently, with the share price down 3.5% over the past week, up 7.7% over the past month, yet still down 45.8% year to date and 12.9% over the last year. This follows a much stronger 157.7% gain over three years and a 43.6% decline over five years.
• Recent news coverage has focused on how Futu Holdings fits into broader market themes, including how investor sentiment around online brokerage activity and regulatory conditions could influence appetite for the stock. This backdrop helps explain why short term moves can differ so much from the longer term return picture.
• On Simply Wall St’s valuation checklist Futu Holdings scores a 5 out of 6. The rest of this article will compare different valuation approaches, before finishing with a broader framework for understanding what that score really means for long term investors.

Approach 1: Futu Holdings Excess Returns Analysis

The Excess Returns model asks whether Futu Holdings is expected to earn more on shareholder capital than it costs to finance that capital, and for how long. It looks beyond simple earnings multiples and focuses on the spread between return on equity and the cost of equity.

For Futu Holdings, the starting point is an estimated Book Value of US$293.86 per share and a Stable Book Value of US$431.13 per share, based on future book value estimates from 9 analysts. The model uses a Stable EPS of US$93.57 per share, sourced from weighted future return on equity estimates from 13 analysts, against a Cost of Equity of US$37.77 per share.

The difference between those two figures is the Excess Return of US$55.80 per share. An average Return on Equity of 21.70% is used to project how these excess returns could build over time on the growing equity base.

Putting these inputs together, the Excess Returns model arrives at an intrinsic value of about US$191.38 per share. Compared with the recent share price of around US$96.64, Futu Holdings screens as significantly undervalued, with an implied discount of roughly 49.5%.

Result: UNDERVALUED

Our Excess Returns analysis suggests Futu Holdings is undervalued by 49.5%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.

Approach 2: Futu Holdings Price vs Earnings

For a profitable company like Futu Holdings, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. It links directly to what you see on the income statement, so it is often the first metric investors reach for when comparing stocks.

What counts as a “normal” P/E depends on what the market expects from a company and how risky those earnings appear. Higher growth expectations or lower perceived risk can justify a higher multiple, while more uncertainty or slower expected growth usually ties to a lower multiple.

Futu Holdings currently trades on a P/E of 10.57x. That sits well below the Capital Markets industry average P/E of 40.54x and below the peer group average of 30.12x. Simply Wall St also calculates a proprietary “Fair Ratio” of 20.49x for Futu Holdings, which reflects factors such as its earnings growth profile, profit margins, industry classification, market cap and specific risk indicators. This tailored Fair Ratio can be more informative than a simple comparison with peers or the broad industry because it adjusts for those company specific characteristics. Comparing the Fair Ratio of 20.49x with the current P/E of 10.57x suggests the stock may be undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 20 top founder-led companies.

Upgrade Your Decision Making: Choose your Futu Holdings Narrative

Earlier it was mentioned that there is an even better way to understand valuation. This is where Narratives come in, giving you a simple story for Futu Holdings that connects your view of its future revenue, earnings and margins to a financial forecast, a fair value, and a clear comparison with today’s share price. All of this is available inside the Simply Wall St Community page, where Narratives update automatically as fresh news or earnings are added, and where different investors can hold very different but clearly quantified views. For example, there may be a cautious Narrative that lines up with a Fair Value around US$111.97, and a more optimistic Narrative that points closer to US$281.15. This helps you see exactly how changing assumptions about Futu Holdings might influence whether you see the stock as above or below your own Fair Value line.

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

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.