Is Hargreaves Lansdown the Optimal Growth Stock on FTSE 100? A Comprehensive Analysis

Hargreaves Lansdown (LSE:HL.) has garnered attention as both a growth stock and a dividend stock among investors. With its share price currently situated towards the lower end of its 52-week range, a deeper evaluation of its prospects is essential.

Share Price Performance:
Over the past two years, Hargreaves Lansdown’s share price has experienced a significant decline of 48%. This decline mirrors the reduced investor activity on its stocks and shares supermarket platform. While the company continues to observe net client growth, the pace has decelerated from the exceptional levels seen during the pandemic. The prevalent negative sentiment in the stock market has further contributed to this subdued activity.

Resilient Business Model:
Hargreaves Lansdown boasts a robust business model that might be undervalued by the market. The company leverages its customers’ cash deposits to generate interest income. The first half of the year saw a 976% increase in its cash margin due to rising interest rates. This segment now constitutes 35% of its total revenue. With expectations of interest rates continuing to rise, this figure is projected to ascend further in FY2023.

Long-Term Prospects:
Looking past the current economic challenges, a surge in British investors participating in the market is anticipated. This shift could be propelled by diminishing cash returns resulting from moderating interest rates. Such a trend is advantageous not only for Hargreaves Lansdown but also for its peers. Nevertheless, the company must remain vigilant about competition from more economical brokerages and could need to adopt further strategies to maintain its competitive edge.

Valuation Analysis:
Although growth stocks typically command higher multiples than the index average, Hargreaves Lansdown deviates from this norm. Its forward earnings multiple is estimated at around 11.3, notably below the index average. A comparison of current P/E ratios positions Hargreaves Lansdown in line with Airtel Africa, more reasonably valued than AstraZeneca. Moreover, the company’s current valuation shows a considerable discount when compared to its own five-year average.

While asserting Hargreaves Lansdown as the finest growth stock on the FTSE 100 may be premature, its valuation is undeniably appealing. Additionally, a noteworthy 5.2% dividend yield sets it apart. The company warrants increased attention for its potential to deliver both growth and income.

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