Hargreaves Lansdown plc (LSE:HL.), a UK£8.22B large-cap, is a capital market firm operating in an industry, which now face the choice of either being disintermediated or proactively disrupting their own business models to thrive in the future. Financial services analysts are forecasting for the entire industry, negative growth in the upcoming year , and a low 4.05% growth over the next couple of years. This rate is below the growth rate of the UK stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Hargreaves Lansdown is a laggard or leader relative to its financial sector peers. View our latest analysis for Hargreaves Lansdown
What’s the catalyst for Hargreaves Lansdown’s sector growth?
The threat of disintermediation in the capital markets industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the previous year, the industry saw growth in the twenties, beating the UK market growth of 12.99%. Hargreaves Lansdown lags the pack with its lower growth rate of 14.03% over the past year, which indicates the company will be growing at a slower pace than its capital markets peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 13.99% in the upcoming year.
Is Hargreaves Lansdown and the sector relatively cheap?
The capital markets industry is trading at a PE ratio of 15.99x, in-line with the UK stock market PE of 17.66x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 12.08% on equities compared to the market’s 11.98%. On the stock-level, Hargreaves Lansdown is trading at a higher PE ratio of 36.5x, making it more expensive than the average capital markets stock. In terms of returns, Hargreaves Lansdown generated 67.46% in the past year, which is 55.38% over the capital markets sector.
Hargreaves Lansdown’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Hargreaves Lansdown has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other capital markets companies. However, before you make a decision on the stock, I suggest you look at Hargreaves Lansdown’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has HL.’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Hargreaves Lansdown? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.