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Stock Strategist

Industry Changes Affect H&R Block

H&R Block faces three major headwinds.

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 H&R Block's (HRB) stock has fallen approximately 50% since the beginning of the year, and this has created what may seem like a good buying opportunity. However, we believe investors should be cautious given the current uncertainty surrounding the name. H&R Block faces three major headwinds, and the clouds surrounding the tax industry veteran have been slow to abate. Given the confluence of these factors, we would advise investors to approach the stock with a healthy dose of skepticism.

Losses from Subprime Mortgages
In 1997 H&R Block acquired Option One Mortgage in order to seek growth and profit expansion. During the housing and mortgage boom, the firm sought to increase revenue and profit through underwriting and selling subprime mortgages. As the housing crisis worsened, the value of the firm's mortgage book fell and it sustained heavy loses. Not only did this strategic misstep cost H&R Block greatly, it distracted management from the firm's core operations, in our opinion.

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.