Hargreaves Lansdown (LSE:HL) shares are down an incredible 48% over the past year. The stock is currently trading under 900p a share, down from a five-year high near 3,000p. The stock fell further this week after the Bristol-based financial services company reported a slowdown in business.
However, it was always going to be hard to sustain the growth levels seen during the pandemic. I certainly thought that, and I assumed the market would have factored it in. Despite the slowdown, I still think Hargreaves Lansdown represents a strong addition to my portfolio. Here’s why.
It’s starting to look cheap!
Based on the previous year’s earnings, Hargreaves has a price-to-earnings (P/E) ratio of 13.7. For me, that’s certainly not expensive as I see its market-leading investment platform becoming increasingly popular in the future. Admittedly the forward P/E isn’t going to look so good as revenue falls this year, but I still see the current dip as a good opportunity to buy.
Recent performance
The pandemic represented a “unique” period for the business as thousands of amateur investors started chasing profits through online platforms like Hargreaves Lansdown’s. 2020 saw events like ‘Vaccine Monday’ that drove record-breaking stockbroking volumes.
And Hargreaves is showing clear signs that the growth was unsustainable. In Thursday’s trading update, the company reported third-quarter inflows of £2.5bn, a fall of 46% from last year. Meanwhile, total assets under administration fell by 6% in the four months to the end of April to £132.3bn, due to adverse market conditions and the notably the fall of tech stocks on the Nasdaq.
The slowdown in asset growth was matched by a slowdown in customer growth, which can be attributed to a number of factors. Analysts pointed to market turmoil and a cost of living crisis, which has led Britons to invest less of their hard-earned cash.
However, the performance was largely in line with expectations. The platform processed an average of 45,000 deals per day in the period. Total revenue in the period of £196.5m (2021: £233.2m) was in line with expectations.
Prospects
A reason like Hargreaves Lansdown stock is because I like its investment platform. It’s my platform of choice. It makes it easy for me to manage my ISA, pension and other investments, while providing news and analysis.
And I think this marries well with current trends. We’re seeing more young people getting into investing, and the pandemic added to this. According to research from Lloyds, one in 10 Britons started investing since the start of the pandemic. Many of them were Millennials or Gen Zers looking to put make their money work for the long term, according to fellow UK bank Barclays.
Hargreaves should be well positioned to benefit from this. While it may appear more expensive than its peers in some aspects (such as cost per trade), it offers useful research, a solid mobile app, real-time streaming data and shortlisted advisor picks.
It recently launched a plan to update its technology and provide new forms of insight for clients. Costing £175m over five years, it may be a while before we see the benefits.
Should I buy?
I’ve recently bought more Hargreaves Lansdown stock and I would buy more. There might be some more short-term pain but I think there’s a lot of growth ahead too.
