If I’d invested £500 in Hargreaves Lansdown shares 1 year ago, here’s what I’d have now!

Hargreaves Lansdowne (LSE:HL) shares are well represented in my portfolio. In fact, it is also a personal choice of investment platform.

But share prices have suffered over the past two years – since the height of the pandemic. And it’s now trading at around 15 times earnings. I do not believe that it is particularly high, especially taking into account the company’s long-term growth prospects.

So, let’s take a closer look at this stock and explore why I think it may be undervalued.

The pressure drops further

If I had bought £500 of Hargreaves Lansdown Shares last year, today I would have around £380 plus around £20 in dividends. That was clearly a huge return on my investment.

The stock has been pushed up on several occasions, but over the course of the year the stock fell 24%.

This is largely because the environment for private investors has deteriorated. We have a cost of living crisis and the stock market has shown considerable volatility. Combined with the opening of the post-Covid economy, Hargreaves has struggled to maintain growth in the pandemic era.

Bull vs bear

Okay, let’s start by looking at the main concerns some investors have about Hargreaves. First, there are doubts about the long-term viability of the company’s cost-based revenue streams.

This is because some investment platforms are starting to reduce their transaction fees and can undercut Hargreaves – the UK’s top investment platform.

In fact, in the US, Charles Schwab – brokerage – has reduced the commission to zero. However, at this time, transaction fees only account for a small portion of Hargreaves’ overall revenue.

Recurring income – making up more than 80% of total revenue – mainly includes platform fees for funds and equities, fund management fees, net interest income and ongoing advisory fees.

As we can see, transactional stock broker commissions are not a big part of the business. Maybe there is something we can do in the future to attract more clients.

I also argue that platform fees are really not enough to deter customers. This is 0.45% for Stocks and Shares ISAs (capped at £45 a year), 0.45% for Self-Sold Personal Pensions (capped at £200 a year), 0.25% for Lifetime ISAs (capped at £45 a year. ). In March, there was no charge on the Junior ISA.

Interested in interest

What I am particularly interested in is the company’s ability to earn interest on customer deposits. With interest rates at their highest since 2008, and forecasts for a mid-term sweet spot of 2%-3%, Hargreaves could really prosper here. Net interest income could be worth more than £200m for Hargreaves this year.

Investors may be concerned about the company’s ability to attract new customers going forward. Net new clients fell to 31,000 in the first half (to December 31). However, I believe that Bristol-based companies are well-positioned to benefit from the British style of wanting to control their investments.

So, when it comes to Hargreaves Lansdown, I’m definitely bull. And with a 5% dividend yield, it’s a great addition to your passive income portfolio. That’s why I bought another one.