Does Hargreaves Lansdown plc's (LON:HL.) Stock Price Account For Its Growth?

Looking at Hargreaves Lansdown plc’s (LON:HL.) fundamentals some investors are wondering if its last closing price of £20.11 represents a good value for money for this high growth stock. Let’s take a look at some key metrics to determine whether there's any value here for current and potential future investors. See our latest analysis for Hargreaves Lansdown

>Where's the growth?

Analysts are predicting good growth prospects for Hargreaves Lansdown over the next couple of years. Expectations from 11 analysts are certainly positive with earnings per share estimated to rise from today's level of £0.473 to £0.704 over the next three years. On average, this leads to a growth rate of 13.45% each year, which signals a market-beating outlook in the upcoming years.

Is HL. available at a good price after accounting for its growth?

Hargreaves Lansdown is trading at price-to-earnings (PE) ratio of 42.54x, this tells us the stock is overvalued compared to the GB market average ratio of 17.17x , and overvalued based on current earnings compared to the capital markets industry average of 15.51x .

We understand HL. seems to be overvalued based on its current earnings, compared to its industry peers. However, to properly examine the value of a high-growth stock such as Hargreaves Lansdown, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 42.54x and expected year-on-year earnings growth of 13.45% give Hargreaves Lansdown a quite high PEG ratio of 3.16x. This tells us that when we include its growth in our analysis Hargreaves Lansdown's stock can be considered overvalued , based on its fundamentals.

What this means for you:

HL.'s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you're a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Financial Health: Is HL.’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has HL. been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of HL.'s historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.