The FTSE 100 has risen by just 29% over the last five years, but investment platform Hargreaves Lansdown (LSE: HL) has gained 166%, while housebuilder Barratt Developments (LSE: BDEV) has delivered a stunning 509% gain.
Both companies have published strong financial results this morning. Do these superstar performers remain attractive, or is it time to hunt for bargains elsewhere?
Investing profits
Hargreaves Lansdown slipped slightly lower this morning, despite the group announcing a record pre-tax profit of 218.9m for the year to 30 June.Hargreaves said that customer numbers rose by 100,000 to 836,000, lifting assets under administration by 6bn to a new record of 61.7bn.
Itslegendary profit margins appear to remain intact. The groups operating margin rose to 56%, up from 50% inthe previousyear. Although critics have sometimes suggested that such high margins may be vulnerable to increased competition, Hargreaves dominant market share appears to have prevented this so far.
The groups overheads are largely restricted to staff and IT costs. Capital expenditure was just 6.6m last year, and 91% of this years profits will be returned to shareholders as dividends.
One slight concern is that chief executive Ian Gorham has decided to step down after seven years in the job. Mr Gorham will leave by 30 September 2017, with finance director Chris Hill expected to take over the position. Theres clearly nothing untoward here, but chief executives often time their departures to coincide with a companys peak performance.
Hargreaves stock trades on 35 times trailing earnings with a dividend yield of 2.6%. The groups past growth and profitability help to justify this valuation. However, earnings and dividend growth are expected to be slower in the future.
While I believe the shares remain a strong hold, Id want a higher dividend yield before buying more.
A housebuilder to buy?
Barratt added 405.5m to its net cash balance last year, taking the total to 592m. That means 60% of the groups pre-tax profit of 682.3m went straight into the bank as surplus cash. Thats impressive.
Barratts sales performance was strong too. Total completions rose by 5.3% to 17,319, but rising prices meant revenue rose by 12.7% to 4,235.2m. Earnings per share were 21.1% higher at 55.1p.
Trading since the referendum seems to have been stable. New reservations have averaged 267 per week since 1 July, compared to 265 for the same period last year. Brexit appears to have had a limited impact on trading so far, although these figures do suggest Barratts growth may be limited this year.
This is reflected in the groups valuation. Barratt shares have fallen slightly this morning, and now trade on a trailing P/E of 9.1. Consensus forecasts suggest that earnings will fall by 12% to 47.5p per share this year, putting the stock on a forecast P/E of 10.7.
In my view, this is about right. Barratt plans to return about 33p to shareholders over the year to November 2017, giving a tasty 6.6% forecast yield.However, the outlook for growth appears to be limited and theres still a risk that the housing market will start to slow this autumn.
Id hold onto Barratt shares for the time being, but I wouldnt buy anymore.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
