LONDON -- I'm shopping for shares right now and wondering whether I should pop high-flying Hargreaves Lansdown (LSE:HL) into my basket?
Riders on the storm
Stock markets have had a storming run lately, and few companies have benefited more than Hargreaves Lansdown.
Its share price is up an incredible 465% over the past five years, and 93% over 12 months, compared to 9% and 16% respectively for the FTSE 100. That's a blistering performance, but is it too late to buy?
The U.K.'s largest fund supermarket only went public in May 2007, shortly before the financial storm engulfed stock markets, but the firm has ridden the winds of recovery.
Its earnings-per-share growth figures for the last six years are some of the most solid I have seen, all double-digit numbers ranging from 20% to 40%. This progress is forecast to continue, with 31% growth in the 12 months to June 30, and another 20% to June 30, 2014.
Markets may have been choppy of late, but it seems it could be further plain sailing for Hargreaves Lansdown.
Hargreaves Lansdown has also bobbed happily through the industry's recent financial-advice overhaul, the Retail Distribution Review, which banned independent financial advisors from charging commission.
The group simply adjusted its pricing model and sailed on as before. It now boasts record levels of assets under administration, up £4.7 billion in the three months to 31 March to £35.1 billion.
Those three months also saw record quarterly net inflows and a 24% rise in year-to-date revenue to £216.6 million. The group also took on 30,000 new clients for its low-cost Vantage investment platform, taking the total to 476,000, up 15% on a year ago. Hargreaves simply powers on and on.
That said, the company's recent interim management statement acknowledged that dangers lurk beneath recent market buoyancy, and a sharp market downturn would hit short-term revenues. It will be interesting to see if the recent turbulence does indeed show up in the next set of quarterly figures.
Persistent low interest rates are a mixed bag for Hargreaves. They help, by encouraging more people to invest in equities, but also hinder, by hitting the company's interest income, especially as its fixed-term deposits mature.
Last time I looked at Hargreaves Lansdown, in September, I decided I had missed the boat. It looked pricey at 22 times earnings, while the yield had dwindled to 2.5%.
But traditional valuation methods count for little when the wind is in your sails. The shares now trade at a fantastical 38 times earnings, with the yield dipping to 1.7%. Other fantastic figures include a 63% operating margin and a 96% return on capital employed.
Hargreaves Lansdown also rides on a fat stream of recurring (and growing) revenues, thanks to the underlying annual management charges from the funds it sells. The firm is free of debt, too.
With markets looking a little shaky, the valuation still looks too pricey for me, I'm afraid. But as that QE cliff edge looms, I am keeping my eyes peeled for a better time to buy.
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