Over the last decade, the number of people putting their money to work in the stock market has grown significantly. Hargreaves Lansdown (LSE:HL.) is one of the financial services companies making this happen; however, its share price is down significantly in the last few years, with internal troubles, economic uncertainty, and a host of other issues impacting the FTSE 100 company.
If I’d chosen to invest £5,000 just five years ago, I’d have been pretty disappointed with how things have gone. With the Hargreaves Lansdown share price now down 60% since then, I’d only have £2,000 left. So is this now a buying opportunity, or is there more trouble ahead?
What’s the story?
Established on July 1, 1981, the company initially operated from a bedroom, focusing on unit trusts and tax planning. The company offers a range of services including funds and shares to retail investors in the United Kingdom and Poland.
How are the numbers?
Hargreaves Lansdown reported a substantial profit increase of 50% in the year to June 30 2023, reaching £402.7m, up from £269.2m the previous year. This performance is pretty noteworthy considering the challenging economic conditions prevailing at present. The revenue for the full year 2023 was £735.1m, marking a 26.09% increase over the prior year’s results.
All pretty impressive numbers given where the share price is. The price-to-earnings (P/E) ratio of the shares at 10.5 times is well below the UK capital markets sector at 37.2 times.
A discounted cash flow calculation, which calculates an approximation of fair price, suggests that the share price of £7.19 is about 35% below the fair value of £11.12. However, the company is expected to see a 1.9% decline in earnings over the coming year, so investors are unlikely to get too excited at this moment.
Strong dividend
In 2023, the company’s dividend increased by 4.53% over the previous year, now at a yield of 5.8%, well above the FTSE 100 average of 3.99%. Analysts covering Hargreaves Lansdown expect the dividends to increase for the upcoming fiscal year, another generous rise of 9.64%. I’m not so sure this is sustainable. The payout ratio, or the percentage of earnings paid out as dividends, at 102%, there’s not much breathing space if future earnings disappoint.
What are the risks?
It’s important to note that the has company faced several reputational challenges, especially in 2019, due to the suspension of trading in the Woodford Investment Management fund, which Hargreaves Lansdown had been promoting. This led to significant criticism and concern among clients and stakeholders.
Additionally, in July 2023 the chair — Deanna Oppenheimer — announced her decision to step down following criticism from the company’s co-founder, Peter Hargreaves, over rising costs and the falling share price. Alongside wider economic uncertainty, these are clearly part of the story behind the recent disappointing performane of the shares.
Will I be buying?
Hargreaves Lansdown is clearly a key player in the UK’s growing financial services sector. Its robust financial performance in recent times highlights its potential, but the internal turmoil in the company amid economic uncertainty in the FTSE 100 and beyond feels like a bad combination. I’ll be keeping well clear for now, but I’ll be watching the share price if the company can turn things around.
The post At five-year lows, is this FTSE 100 company now getting exciting? appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
If I’d invested £1k in Hargreaves Lansdown shares in Q1 2020, here’s what I’d have now
2 top dividend stocks to consider buying in November
1 top dividend stock to consider buying in November 2023
‘Be greedy when others are fearful’: 3 stocks for Warren Buffett’s mantra
Down 24% in 3 months, Hargreaves Lansdown shares look a steal to me
Gordon Best has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
