Since hitting its all-time high share price of £24.18 in 2019, Hargreaves Lansdown (LSE: HL) shares have dropped like a lead balloon, over 66% in total.
But the stock has crept up 3% in the last month. It’s broken through the £8 barrier to sit at £8.17 and there are strong signs this might be a turning point for the stock.
Latest update
That 3% jump came on the back of a positive May 4 trading update. For the six months ended 31 December 2022, the firm acquired 31,000 new customers, saw revenue jump 20% to £350m and pre-tax profit increase by 31% to £198m.
Throw in a strong balance sheet and a 5.02% forward dividend that’s as high as it’s been for a decade and the stock looks like a bargain. So why is that share price still so low?
£15bn price
Founded in 1981, Bristol-based Hargreaves Lansdown saw success offering financial accounts like ISAs and SIPPs that propelled it to a £711m valuation by its 2007 IPO.
The success continued as a public company. It grew into one of the biggest financial services companies in the UK, taking a place on the FTSE 100 index and reaching a 2019 peak valuation of £15bn.
But then the firm got involved in the Neil Woodford scandal and took a huge reputation hit.
Woodford debacle
As a quick recap, Woodford managed £10bn of investors’ money in a fund Hargreaves Lansdown heavily promoted. After phenomenal early success investing in ‘undesirable’ British companies, Woodford put much of the fund’s money in small unlisted start-ups.
These investments tied up that cash. So when the fund’s performance struggled, there wasn’t enough liquid cash to pay withdrawals.
The fund was soon suspended. Millions waved goodbye to their savings and retirements in what became one of the biggest investing scandals of the 21st century.
The result for Hargreaves Lansdown was that its shares have been on a long decline ever since. Its market cap fell all the way to £4bn.
£11.95 a trade
That’s not the end of it either. Further reputational damage might be on its way with an upcoming £100m lawsuit from 3,200 investors who felt they were misled by Hargreaves Lansdown about the fund they were sold.
But outside of this issue, the company seems well-placed looking ahead. Its 1.7m customers give it a 40% market share of the D2C (direct-to-consumer) market. A terrific 92% retention rate shows that customers like the firm’s service.
For me, the biggest question will be if it can maintain that stranglehold on the market share against fintech start-ups like Trading212 or Freetrade, which offer zero-fee trading.
Hargreaves Lansdown charges a pricey £11.95 a trade whether it’s buying or selling. That could drive away smaller investors.
Buying?
If I wanted to buy in, that £8.17 share price makes a forward price-to-earnings ratio of 13.2, which seems reasonably priced at a bit lower than the FTSE 100 average of 14.
At this price, analysts seem broadly positive about the company’s prospects. An average price target of £10.73 offers a tempting 31% upside and Barclays Bank goes one step further with a £12.25 price target.
But all in all, with a lot of stocks looking cheap at the moment, I don’t see Hargreaves Lansdown as a no-brainer buy. I’ll keep it on my watchlist for now.
