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Investors loved fast-growing Hargreaves Lansdown (LSE: HL) shares for years but lately the Bristol-based investment management company has found the going tough.
It led the DIY investor revolution since launch in 1981, joining the FTSE 100 some 30 years later, but has floundered amid tough competition and volatile stock markets.
If I’d invested £5,000 in its shares five years ago I’d have just £2,034 today, as the stock has crashed a brutal 59.32% in that time. That’s far, far worse than the FTSE 100’s fall of 3.18% over the same timescale (and the Footsie is actually up with dividends reinvested). Over the last year, Hargreaves Lansdown shares are up a modest 4.93%.
I see Hargreaves Lansdown as a geared play on the stock market. It tends to rise faster on the way up, as investors feel bullish, money flows in and assets under management soar. It then falls faster on the way down, as all three factors reverse.
Comeback potential
I resisted buying the stock at peak Hargreaves mania, wisely deciding I’d arrive too late to share in the gains. Especially with the stock trading at around 27 times earnings and yielding just 1.5% or so.
Today, Hargreaves Lansdown trades at just 13.1 times forecast 2023 earning, and offers a prospective yield of 4.92%. Analysts expect that to hit 5.38% in 2024.
Those figures look tempting to me. As does the wider investment environment, with the FTSE 100 jumping 2.56% last week after June’s US inflation figure came in slightly lower than expected at 3%. Hargreaves, by comparison, jumped 8.93%, the sixth best performer on the entire FTSE 100.
It was showing signs of improvement even before last week’s rebound, with net new business up 14% in the first three months of the year to £1.6bn, while assets under administration rose 4% to £132bn. Year-on-year revenues jumped 28% to £188.1m, with client numbers up 23,000 to 1.8m.
It could be time to buy
Despite stiff competition from the likes of AJ Bell, Bestinvest, Fidelity and Interactive Investor, Hargreaves Lansdown is holding its own thanks to healthy customer retention. I hold a Stocks and Shares ISA account with the platform and service has always been excellent, although there are worries this will worsen as it looks to cut costs. The platform is slightly pricier than its rivals, but management has been addressing that.
Of course, last week could easily prove another false dawn for the stock market, with the global economy on the brink of recession. As interest rates rise, many customers may prefer to leave their cash in a best buy savings account rather than invest it through a Stocks and Shares ISA. Although Hargreaves Lansdown is a beneficiary of higher rates, as it allows it to increase the margins on customer funds.
Personally, I think Hargreaves Lansdown looks a buy for the first time in years. I have a lot of FTSE 100 targets but this is now high on my hit list and I’ll add it to my portfolio when I have the cash, with luck before the next leg of the recovery.
