After rising above 2,400p in May, Hargreaves Lansdown (LSE: HL) shares have pulled back over the last five months and currently trade at around 1,730p. There are two main reasons for this.
Firstly, investor sentiment is weak at the moment due to Brexit and trade wars. Given the stock is seen as a stock market proxy, investors have dumped it. Secondly, the company’s reputation has been damaged as a result of the role it played in the Neil Woodford debacle.
So, what’s the best move now? Has the share price dip provided an attractive buying opportunity or should Hargreaves Lansdown shares be avoided?
Attractive long-term growth story
Let me start by saying I’m a huge fan. I use its investment platform for my Stocks & Shares ISA, my Lifetime ISA, and my Self-Invested Personal Pension (SIPP) and I think it’s brilliant. It’s not the cheapest platform out there but, overall, it offers a great service.
I also like the long-term growth story. As I said earlier, Hargreaves is a stock market proxy. And what do stock markets tend to do over time? Rise. That means there are tailwinds that should drive growth over the long term. Combine that with the fact that Britons desperately need to save and invest more for retirement, and the long-term outlook for Hargreaves looks quite exciting, in my view.
Having said that, the company really screwed up with Woodford, in my view. The fact his Equity Income fund, which clearly had problems, was on its ‘Wealth 50’ best-buy list up until the day it was suspended, doesn’t look good for the company. Clearly, there were conflicts of interest there.
Now what concerns me here is that there are rumours the UK’s financial watchdog, the Financial Conduct Authority (FCA), could potentially fine the investment firm for recommending Woodford’s fund, despite its underperformance and risk profile.
Additionally, there’s talk the company’s failure to warn customers about the underperforming fund now leaves it open to legal action from angry investors. For example, Citywire reported yesterday class-action lawyer Leigh Day is probing a potential legal claim against Hargreaves after being approached by furious investors who’ve lost money from investing in Woodford on the firm’s guidance.
Personally, I wouldn’t be surprised to see an FCA fine or legal action taken against the firm, given the extent of the mess. And these kinds of shocks could see the shares fall further.
Time to buy?
All things considered, I don’t see Hargreaves Lansdown shares as a ‘buy’ just yet. Given the stock’s valuation is still relatively high, even after the recent share price pullback (forward P/E of 29.7), I think there’s risk to the downside until the Woodford saga blows over.
That said, I continue to like the long-term story associated with Hargreaves, so I’ll be keeping an eye out for attractive buying opportunities.
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Edward Sheldon owns shares in Hargreaves Lansdown. 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.