Hargreaves Lansdown (LSE: HL) shares were the toast of the stock market for years but lately they‘ve lost their fizz. Founded in 1981, the financial adviser and fund platform took just 30 years to barge its way into the FTSE 100, but couldn’t keep up its breakneck growth.
That was probably inevitable. Founders Peter Hargreaves and Stephen Lansdown hit on a top idea and are billionaires as a result. That’s the joy of having first-mover advantage. The downside is that rivals catch up in the end, copying, refining, improving, or undercutting your model. It’s the way of the world.
The mighty fallen
Hargreaves Lansdown shares became too expensive, trading at around 30 times earnings, as investors factored in more of the same. Breakneck growth isn’t so easy to deliver when you’re a £6bn business instead of a plucky upstart.
It was even harder as stock markets struggled to match the dizzying highs of the 1980s and 1990s. The millennium has seen the dot-com crash, financial crisis, Covid lockdowns, and now inflation. There seems to be no letting up as we lurch from one crisis to another, and DIY investors aren’t as bullish as they were.
Pre-tax profits hit £378.3m in 2020 but two years later they had slumped to £269.2m. So it’s hardly surprising to see the Hargreaves Lansdown share price come down to earth. If I’d invested a £5,000 lump sum in the company three years ago, I’d have lost half my money. That would leave me with around £2,500 plus reinvested dividends of around £400 or so. Let’s say £2,900. It’s a poor showing.
Luckily, I didn’t buy Hargreaves Lansdown three years ago. But I’ve been keeping a close eye on it lately, expecting it to bottom out and waiting for my opportunity to jump in.
Hargreaves Lansdown now looks reasonably valued trading at 10.83 times earnings. The latest yield was 5.6%, covered 1.3 times by earnings. I love buying out-of-favour shares and Hargreaves fits that description to a tee. They have to have bounce back potential, though. So does it?
Time to buy?
Hargreaves is still a money maker. It posted revenues of £735.1m in 2023, up 26% on 2022. Profit before tax rose a cool 50% to £402.7m, beating that 2020 high. Management hiked the dividend per share 4.5% to 41.5p.
There were hiccups. Net new business dropped 13% but was still solid at £4.8bn. Hargreaves attracted further 67,000 net new clients, bringing the total to more than 1.8m. Client retention was stable at more than 92%. Hargreaves has been criticised for being pricier than its rivals, but customers clearly like it.
Investors aren’t so excited, though. The shares continue to slide, down 7.22% over 12 months and another 2.5% last week. So I’m glad I didn’t buy it in the summer.
I still believe there is a really attractive opportunity here. When interest rates peak and markets get their mojo back, I would expect Hargreaves Lansdown to lead the charge, as a geared play on the market. We just need that recovery. I’m putting together some cash and hope to buy before we get it.
