FTSE 100 shares are well represented in my portfolio. And investment supermarket Hargreaves Lansdown (LSE:HL) features among them.
The stock is down a considerable 33% over the past year. Thankfully, I haven’t lost that much. But I like to see these corrections as opportunities.
So, is this an opportunity to buy an undervalued stock, or is Hargreaves cheap for a reason?
Valuation
Hargreaves trades with a price-to-earnings ratio of 18. That puts it among the more expensive stocks on the index, but the firm has demonstrated impressive growth in recent years.
The figure is based on profit of £269m in the 12 months to June 2022. The figure for the previous 12 months had been £366m, as the investment platform experienced a period of extraordinary growth during the pandemic.
What’s behind the fall?
The last 18 months have been very different to the first 18 months of the pandemic. Restaurants, workplaces, cafes, bar and gyms have all reopened. Britons have more to do than sit at home watching the stock market.
As such, new client growth has fallen and trading volumes with it. We can also assume that the cost of living crisis is part of the reason for the slowdown. Britons have less money to invest and may even be withdrawing from their portfolios as times get tough.
Positive signs
Despite a worsening macroeconomic environment, Hargreaves reported 17,000 net new clients in the last quarter, taking the total to 1,754,000 active clients. Meanwhile, revenue for the period came in at £162.9m, up 15% year on year.
One factor contributing to this enhanced revenue is interest rates. The Bank of England base rate increased by more than 300 basis points in 2022, and this means Hargreaves can generate more interest on customer deposits.
The Bristol-based firm is set to make £200m throughout the year as a result of higher interest rates according to analysts predictions. This is around 34% of total revenue for the financial year ending June 30, 2022.
As such, we can observe that this is one sizeable tailwind.
Doubling up
I already own shares in Hargreaves Lansdown. I also use the platform for my investments. But I’m going to buy of the stock.
In the near term, there are two factors to consider. Reduced trading activity due to factors like the cost of living crisis and increased interest revenue. Despite the former, I actually see revenue pushing upwards in this financial year.
And in the long run, well, I like the Hargreaves Lansdown product, and I think it’s the no. 1 investment platform in the UK for a good reason. And, with Britons becoming increasingly keen on managing their own investments, I expect more long-term gains.
Moreover, while I’m confident about the growth prospects, Hargreaves also offers an attractive 4.2% dividend yield.
Collectively, these factors make Hargreaves a winner for me.
