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Hargreaves Lansdown (LSE: HL) shares were the hit of the stock market for years, but have lost their fizz of late. Founded in 1981, it took just 30 years for the financial advisor and fund platform to make its way into the market. FTSE 100but it could not maintain its dizzying growth.
That was probably inevitable. Founders Peter Hargreaves and Stephen Lansdown had a great idea and are multimillionaires as a result. That’s the joy of having first-mover advantage. The downside is that rivals eventually catch up, copying, refining, improving or undermining your model. It is the world.
The fallen mighty
Hargreaves Lansdown shares became too expensive, trading at around 30 times earnings, as investors factored in more of the same. Skyrocketing growth isn’t so easy to achieve when you’re a £6bn company rather than a plucky upstart.
It was even tougher when stock markets struggled to match the dizzying highs of the 1980s and 1990s. The millennium has seen the dotcom crash, the financial crisis, Covid lockdowns and now inflation. There seems to be no let up as we move from one crisis to another, and DIY investors are not as optimistic as before.
Pre-tax profits reached £378.3m in 2020, but two years later had plummeted to £269.2m. So it’s no surprise to see Hargreaves Lansdown’s share price come crashing down to earth. If I had invested a lump sum of £5,000 in the company three years ago, I would 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 bad performance.
Luckily I didn’t buy Hargreaves Lansdown three years ago. But I’ve been following it closely lately, waiting for it to hit bottom and waiting for my chance to jump.
Hargreaves Lansdown now appears reasonably valued trading at 10.83 times earnings. The latest return was 5.6%, covered 1.3 times by earnings. I love buying out-of-favour stocks and Hargreaves fits that description perfectly. However, they must have recovery potential. That’s how it is?
Is it time to buy?
Hargreaves remains a source of income. It reported revenue of £735.1m in 2023, up 26% from 2022. Pre-tax profit rose 50% to £402.7m, surpassing the 2020 high. Management increased the dividend per share 4.5% to 41.5p.
There were setbacks. Net new business fell 13% but was still strong at £4.8bn. Hargreaves attracted a further 67,000 net new customers, bringing the total to more than 1.8 million. Customer retention remained stable at over 92%. Hargreaves has been criticized for being more expensive than its rivals, but customers clearly like it.
However, investors are not so enthusiastic. Shares continue to fall, down 7.22% in 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 regain their mojo, I would expect Hargreaves Lansdown to lead the charge, as a market-oriented play. We just need that recovery. I’m raising some cash and hoping to buy it before we get it.
