Due to the potential investment opportunities available within the UK market, I often find it helpful to use a filter to scan all FTSE 100 shares. These filters range from simple price-to-earnings (P/E) ratio scanners to more complex value or growth screeners. In this case, I have decided to look for companies currently trading at their one-year low.
The economic headwinds of consistently elevated inflation and economic slowdown have contributed to shares falling. Many general indexes are down far below pre-2020 levels, prior to the pandemic. These are certainly not ideal market conditions, but good quality companies can often be found hidden in mass sell-offs. It is when a strong share is trading at a discount that I want to add it to my portfolio.
Quality at a discount
I have found one company in the main FTSE index that is trading at its lowest price this year. I would be tempted to add it to my portfolio, if I didn’t already own it. When looking at discounted shares, I do have to remember that they are likely to be trading at a lower level for a reason. This doesn’t mean they can’t still present exciting investment opportunities. But the potential risks need to be considered when I decide whether to add them to my portfolio.
The share identified by my filter is Hargreaves Lansdown (LSE: HL). The company operates direct-to-investor services in the UK, providing managed funds, investment execution, and support services.
The company has suffered over the last three years. The share price has fallen 45.3% in 2022 and is down almost 70% since its peak in 2019. In addition to this, the company has struggled with negative publicity since the infamous Woodford fund collapse. This has increased uncertainty around the company and contributed to the current reduced price.
Underlying fundamentals
Despite the decline in the share price, the Hargreaves Lansdown has impressive profit margins and cash generation when looking at the underlying fundamentals. It is also forecast to grow turnover by 11.3% in the next year, considerably above its three-year average of 6.7%. Furthermore, the company has very low levels of debt and holds significant levels of cash on its balance sheet.
Another tempting factor is the current dividend yield of 5.4%, which is forecast to reach 5.6% next year. This level is considerably above the FTSE 100 average yield of 3.7%. Furthermore, this dividend has been paid consistently for 15 years and has grown for seven years. And, the company can comfortably cover dividend payments with earnings per share (EPS), improving its stability.
Current price multiple
It is important to note that the company currently has a price-to-earnings (P/E) ratio of almost 15, making it not quite a value opportunity. This is despite the dramatic fall in share price and could indicate that the company is returning to a more reasonable pricing level.
Also, the chief executive has identified considerable economic and geopolitical turbulence as a core driver of reduced investor confidence. These headwinds impacted the levels of new business generated by the company and resulted in current EPS falling compared to 2021.
Nonetheless, I would add Hargreaves Lansdown shares to my portfolio if I hadn’t already.