Over the past month, the Hargreaves Lansdown (LSE:HL) share price has jumped by 26%. It’s now at the highest level since late 2021. Whenever I see such a rapid rise in the price of a large-cap stock (don’t forget that it’s in the FTSE 100), there’s always something going on. Here’s the lowdown.
Eyeing up takeover deals
The share price has rallied recently based on news that it could be bought out by private equity. This isn’t unusual, in fact over the past few months we’ve seen several FTSE firms get bought out. Hargreaves Lansdown received several bids from a private equity consortium over the past month.
The latest one that was rejected was at 985p per share. Yesterday (18 June) a new offer was made, at 1,140p. With the current share price at 1,125p, this makes sense. Even though the offer hasn’t been formally accepted yet, investors try and predict the future. Therefore, if the offer price is at 1,140p and the current share price was significantly lower than this, a sharp rally towards 1,140p would be seen.
This explains the surge in the stock in the recent past as the potential buyers think they’ve found a value stock. But the question now turns to whether there’s any investment potential for me right now.
Struggling to find good value
If we ignored the takeover bids, I’d be very sceptical about investing. The stock might be up 38% over the past year, but if we strip things back the business isn’t in a great state.
It has been losing market share to other FinTech firms in recent years. In the half-year results through to the end of 2023, net new business fell by 38% versus the same period the previous year. Profit before tax fell by 8%.
The firm is still the largest wealth platform in the UK and so does have a great foundation of existing and legacy clients. This base means that it will always have a steady revenue stream.
Further, the strategic refresh has been completed and the CEO is confident on the outlook going forward. He noted that “the business is built on strong foundations; a proud heritage, with a trusted brand and knowledgeable, client-focused colleagues.”
Yet all of this could be irrelevant. The management team has said it would recommend shareholders accept the latest offer. If this is the case, then there’s little point me buying the stock at the current price. Sure, I could make a small amount of quick cash, but that isn’t my style of investing.
Best to look elsewhere
In terms of risks, the takeover bid could still fall through. In this case, I’d expect a sharp move lower in the stock, removing all of the gains from the past month. This could further cause problems for the company, potentially making others stay away from considering a takeover of the business.
From my perspective, I don’t see the value in investing now. If the bid goes through, my gains are limited. If it doesn’t go through, the share price could tank. Either way, the risk-to-reward ratio doesn’t stack up.
