3 reasons investors should consider buying Hargreaves Lansdown shares today

Edward Sheldon believes Hargreaves Lansdown shares are undervalued right now and have the potential to provide attractive gains from here on.

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Key Points

  • Hargreaves Lansdown shares look undervalued at present
  • There's an attractive dividend on offer
  • The new CEO has plans to drive growth 

Hargreaves Lansdown (LSE: HL.) shares have taken a huge hit in recent years. Three years ago, they were trading near 1,600p. Today however, that can be snapped up for around half that.

Has the share price weakness presented a compelling investment opportunity? I think so. Here are three reasons investors should consider buying shares in the financial services company today.

Undervalued?

Let’s start with the valuation. Because, right now, it’s low. For the financial year ended 30 June, Hargreaves Lansdown generated earnings per share of 74.3p.

That puts the FTSE 100 company’s trailing price-to-earnings (P/E) ratio at about 11 – below the market average. I really don’t think Hargreaves should be trading at a discount to the market.

This is a business that:

  • Is a leader in its industry (with 1.8m customers)
  • Has attractive long-term growth prospects (its earnings should rise as Britons save and invest more over time)
  • Is highly profitable (it’s one of the most profitable businesses in the FTSE 100)
  • Is benefitting from higher interest rates (higher rates are prompting more investors to take advantage of its Active Saving services)
  • Has a strong balance sheet with no debt on its books

All things considered, I’m convinced the stock is undervalued right now.

Big dividend

Another appeal is the big dividend on offer. For its most recent financial year, Hargreaves declared total dividends of 41.5p per share (up 4.5% year on year). That translates to a yield of around 5.1% at today’s share price.

So even if the stock wasn’t to rise from here, investors could still potentially generate healthy returns.

New CEO

Finally, the company has a new CEO in Dan Olley. And he appears to be intent on driving the business forward, as he should be.

As I begin my CEO tenure, it is clear to me that at its core this is a strong business with fantastic heritage that has significant potential to benefit from the structural, demographic, and regulatory shifts in the UK and the expected growth in the wealth market,” he wrote in the company’s full-year results.”

He added: “My early focus is to ensure we are set up to capture this growth opportunity, that we have pace of execution, cost discipline as we travel on this journey, and that we are giving our people the best opportunity to deliver for our clients and shareholders.”

This stance from the CEO is very encouraging, to my mind.

I’ll be buying more shares

Of course, there are some risks here. One is competition. In recent years, a number of new rivals has entered the sector, including Trading 212, Freetrade, and WeBull. And a lot of these competitors offer lower fees than Hargreaves.

Another is appetite for investing. Right now, many Britons are struggling to make ends meet and don’t have spare capital to invest.

The company also needs to work on enhancing its reputation, which suffered as a result of Neil Woodford’s downfall.

Overall though, I see a lot of appeal in the FTSE 100 stock. I already own it and I’m likely to buy more shares soon.

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.

Edward Sheldon has positions in Hargreaves Lansdown Plc. 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.

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