Hargreaves Lansdown investors are buying this FTSE 100 stock. Is that a smart move?

Hargreaves Lansdown investors appear to be betting that Pfizer’s coronavirus vaccine will send the share price of this FTSE 100 stock higher.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

UK investors have been piling into Hargreaves Lansdown (LSE: HL) shares recently. Last week, the FTSE 100 stock was the fourth most bought share on the Hargreaves Lansdown platform. Investors appear to be betting that the Pfizer vaccine will send the UK stock market, and Hargreaves’ profits, higher.

Is investing in Hargreaves Lansdown shares a smart move for me today? Let’s take a look at the investment case.

Hargreaves Lansdown: coronavirus resilience 

While other FTSE 100 companies have struggled this year, Hargreaves has performed well. For example, in August, the company posted a 15% increase in revenue and a 24% increase in profit before tax for the 12 months ended 30 June.

More recently, in October, the group said revenue for the three months to the end of September was up 12% on the same period last year. There are not many companies in the FTSE 100 delivering performances like this at the moment.

Strong financials

Taking a closer look at Hargreaves Lansdown’s financials, there’s a lot to like. Starting with profitability, this is very high. Over the last three years, return on capital employed (ROCE) has averaged 68%. This means that Hargreaves makes a big return on every pound invested in the business.

Moving on to the balance sheet, this also looks excellent. The FTSE 100 company has minimal debt, which means it’s likely to be less vulnerable during challenging periods.

Hargreaves also has a strong dividend track record. Over the last 10 years, the company has lifted its payout from 11.9p to 37.5p per share. Meanwhile, it’s paid a special dividend in four out of the last five years. While most FTSE 100 companies suspended or cancelled their dividends this year, Hargreaves raised its payout by 11% and paid out a huge special dividend. That says something about the quality of the company.

Competitive advantages

What about competitive advantages? Does Hargreaves Lansdown have an edge over the competition?

In my view, the company has several competitive advantages. Firstly, there’s its size and market share. At 30 September, it had assets under administration (AUA) of £107bn. That makes it more than twice as big as rival AJ Bell, which had AUA of £49.7bn. Its market share of the UK execution-only market is about 40%.

Hargreaves Lansdown

Source: Hargreaves Lansdown

Secondly, there’s Hargreaves’ platform itself. I think it’s brilliant. It’s very easy to use and the range of investment options is phenomenal. Customer service is also fantastic. 

Finally, the nature of the business provides a competitive advantage. Once set up on Hargreaves, it isn’t easy to switch to another provider.

Valuation and yield

Turning to the valuation, Hargreaves shares currently trade on a forward-looking P/E ratio of about 30 and sport a prospective yield of 2.6%. This means the stock isn’t a bargain. However, the share price is currently about 33% below its 2019 high, which suggests there’s upside potential.

I’d buy Hargreaves Lansdown shares 

Weighing everything up, I see a lot of appeal in Hargreaves Lansdown shares right now.

The stock isn’t without risk, of course. Competition from the likes of Vanguard is one that comes to mind. The lofty valuation is another.

However, overall, I see HL as a high-quality stock with the potential to rise higher in the long run. I’d buy this FTSE 100 share today.

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 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »