Hargreaves Lansdown: contrarian buy or a fallen star?
Leading retail investor platform Hargreaves Lansdown (LON:HL.) has seen its growth slow in recent years, as a raft of newer and cheaper competitors have entered the market.
Relatively high prices and a lingering association with the Neil Woodford scandal may also be hindering sentiment towards the business.
However, while Hargreaves undoubtedly faces some near-term challenges, trading appears to be stabilising. April’s third-quarter trading update was good enough to trigger a round of broker upgrades.
Hargreaves’ historic DNA is as a low-cost innovator. Today the company is a hugely profitable market leader. If CEO Dan Olley can combine these strengths to rejuvenate the business, I believe the shares could be cheap on a medium-term view.
In the meantime, I think Hargreaves £500m net cash balance and well-supported 5.7% dividend yield should help to underpin the stock’s valuation.
Summary
Pros:
Market leader with near-40% shareVery strong profitability and good cash generationModest valuation if business can return to earnings growth
Cons:
May need to cut prices to become more competitiveOngoing legal action relating to Woodford affairHighly competitive marketplace, can HL attract new...