Why Hargreaves Lansdown (LON:HL.) Will Appeal To Moat Investors

Why Hargreaves Lansdown (LON:HL.) Will Appeal To Moat Investors

Ben Hobson  | Aug 03, 2020 09:51

There's an exclusive group of companies in the stock market that stand out because they've got what billionaire investor Warren Buffett calls economic moats. Like medieval castles, their profits are fortified by impregnable business models... and there are signs that Hargreaves Lansdown (LON:HRGV) (LON:HL.) might be one of them.

Given the present disruption and volatility in the stock market, it is more important than ever to identify high-quality stocks for your portfolio - and finding companies with moats is one way to do it.

Moats come in different forms, but they mostly consist of:

  • Intangible Assets - Such as brands that customers love, valuable patents or regulatory approvals
  • High switching Costs - It might be too costly, complicated or unnecessary for customers to look elsewhere
  • Network Effects - When customers become part of a product it creates tremendously powerful businesses
  • Cost Advantages - Superior processes and unique locations and assets make it hard for others to compete
  • Great Scale - Large infrastructure and distribution networks are powerful barriers to entry in many industries

Here's a quick guide to finding the clues to economic moats - using Hargreaves Lansdown (LON:HL.) as an example...

Hargreaves Lansdown's impressive metrics

Some of the biggest indicators of a moat involve persistent strong margins and high levels of cash generation – cash being especially important given the recent shocks to the worldwide economy. Here are a few ways of gauging these characteristics - and how Hargreaves Lansdown compares:

  1. High rates of Free Cash Flow - the measure of a thriving company.
    - A high ratio of free cash flow to sales can be a very positive sign. For Hargreaves Lansdown, the figure is an impressive 43.3%.
  2. High Return on Capital Employed - the measure of a company growing efficiently and profitably.
    - A 5-year average ROCE of more than 12 percent is a pointer to strong efficiency. For Hargreaves Lansdown, the figure is an eye-catching 78.3%.
  3. High Return on Equity (compared to peers) - the measure of a company making good profits from its assets.
    - Hargreaves Lansdown has a 5-year average ROE of 67.8%.
  4. High Operating Margins (compared to peers) - the measure of a company with pricing power
    - Hargreaves Lansdown has a 5-year average operating margin of 60.4%.

Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.

Original Post

Ben Hobson

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.