Recently relegated to the FTSE 250, Hargreaves Lansdown (LSE:HL) has experienced a year to forget.
Not only has it been bumped from the Footsie, but its shares have fallen by almost 17% in the last year.
However, I believe the market has been too unkind to its shares, providing investors with an opportunity to consider looking into them further.
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Why did its shares fall?
There are some justifiable concerns with Hargreaves Lansdown.
Firstly, due to macroeconomic conditions, retail investors experienced much more pressure to constrain their budgets in 2023.
Moreover, towards the end of the year, the Financial Conduct Authority (FCA) wrote to 42 companies, including Hargreaves Lansdown, telling them that they must stop the practice of ‘double dipping’. This is when firms charge clients for holding their money while also keeping some of the interest that they’re earning on it.
Investors should bear this in mind when considering its shares.
However, I don’t believe they’re massive issues in the long term.
The cost-of-living crisis is expected to ease in 2024. KPMG has predicted modest GDP growth of 0.5% and 1% in 2024 and 2025, respectively. Furthermore, economists are predicting the Bank of England to make some interest rate cuts in the year.
With inflation also easing, retail investors should be less cost-constrained going forward. This should allow for more trading activity.
In terms of earning interest from holding client funds, this is an insignificant portion of its revenue.
Solid fundamentals
Hargreaves Lansdown is the UK’s largest savings and investment platform, with 1.8m clients.
Last year, it experienced great growth, in stark contrast to its share price.
Revenue jumped 26% year on year from £583m in 2022 to £735m.
Profit for the year also grew by an incredible 50%, from £216m in 2022 to £324m.
This shows that the company has been able to perform very well, even in tough economic conditions.
Its management also believes that the total addressable wealth market could hit £3.7trn by 2026, which could fuel further growth.
A passive income opportunity
With a dividend yield of 5.9%, Hargreaves Lansdown shares also provide a great opportunity to make some money on the side.
If we make the conservative assumption that its dividend will remain the same as last year, at 41.5p, investors could make an additional £100 a month by purchasing 2,892 of its shares.
This would cost £20,866 at its current share price of £7.22, which I appreciate is an extremely large sum of money. It’s also important to bear in mind that dividends aren’t guaranteed.
Investors should note that my calculations are conservative. Hargreaves Lansdown has increased its annual dividend by 23% over the last five years. There’s no reason to believe it won’t continue to do so.
Now what?
As economic pressures ease and growth continues strongly, I believe that Hargreaves Lansdown shares can thrive in 2024.
For the level of growth it’s experiencing, a price-to-earnings (P/E) ratio of 10.4 also looks very cheap. Therefore, it’s a share for investors to keep a tab on in 2024.
