One FTSE 100 stock I’d buy and one I’d sell today

Royston Wild looks at two FTSE 100 (INDEXFTSE: UKX) stocks with very different growth outlooks.

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Hargreaves Lansdown (LSE: HL) saw its share price duck marginally in Tuesday trade following a muted response to full-year numbers. The stock was last 1% lower on the day.

The FTSE 100 company advised that net new business outflows charged 15% higher during the 12 months to June 2017, to £6.9bn, a result that powered assets under administration 28% higher to £79.2bn. And the firm saw the number of active customers on its books balloon by 118,000 year-on-year, to 954,000.

Net revenues rose 18% from fiscal 2016, to £385.6m, while pre-tax profit cantered 21% higher to £265.8m.

Commenting on last year’s results, chief executive Chris Hill said: “We have had a good year for gathering new clients and assets as a result of our relentless focus on the exceptional service we provide.  Key to this has been understanding the needs of our clients and expanding our range of solutions and services to help them.

There are considerable challenges for people in the current saving and investment environment but there are also opportunities, and Hargreaves Lansdown is ideally placed to help people make their investment decisions with confidence.” 

Pacy profits growth on the cards

The City certainly doesn’t expect it to run out of steam any time soon, and analysts have chalked in an 11% earnings rise for 2018.

These forecasts do not make the Footsie star appear too attractive on paper, however, Hargreaves Lansdown sporting a prospective P/E ratio of 27.2 times. Still, I think the company’s resilience in the face of tough market conditions warrants such a premium, as does the massive revenues potential of its ever-expanding product suite and fast-improving digital operations.

Furthermore, the number crunchers are also expecting dividends to ignite again following last year’s disappointing outcome. The Bristol business was not able to pay a special dividend in 2017 after the Financial Conduct Authority said it would reassess the company’s regulatory capital requirements given its “strong recent growth in scale and complexity.”

While there still remains some uncertainty around this issue, the number crunchers anticipate that Hargreaves Lansdown will loosen the pursestrings again this year in light of its strong cash generation and hot earnings outlook. As a consequence, total rewards of 45.7p per share are expected, up from 29p last year, and meaning that the asset manager offers a chunky 3.4% yield.

A textbook sell

I am not so convinced by the growth outlook over at Pearson (LSE: PSON) and am tipping the Footsie business to carry on struggling for some time yet.

City analysts expect the company to report a second successive earnings fall in 2017, an 18% drop currently being forecast. And it is easy to see this trend continuing give the colossal structural troubles in its core markets, as student enrolment levels in North America steadily decline and those in higher education increasingly switch from buying expensive textbooks to renting them, or seeking cheaper materials online.

So despite its conventionally-low forward P/E ratio of 12.9 times, I believe the company is still not worth the risk right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

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