If you like getting paid when other people do deals, this one’s your flavor. Think steady fees, fat relationships, and a franchise that tends to eat in bull and bear markets alike.
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Strategic Positioning
Houlihan Lokey (NYSE: HLI) is the investment bank you call for real work, not just ribbon cuttings. They live in mergers and acquisitions, capital raising, restructuring for troubled companies, and a big valuations practice that touches everything from fairness opinions to complex accounting matters.
This means they collect fees across good times and bad. When deals are booming, the M&A phone rings.
When the music stops, restructuring steps on stage. And valuations hum in the background through the whole movie.
Why we like the setup right now:
Share gains show up in the math. Revenue grew about 17% annually over five years, which is not normal for a mid-cap advisor unless you’re taking wallet share.
Profits grew faster than sales. Earnings per share ran ahead of revenue, with about 29% annual growth over the past two years, a sign that new business is coming in at strong margins.
Balance sheet muscle. Tangible book value per share jumped ~44% over two years, and the company sits on net cash (about $300M), which gives flexibility for hiring, bonuses, and bolt-ons.
Multiple engines. M&A is the headliner again as rates stabilize and boardrooms rediscover courage, but the restructuring team is still there if credit cracks. Meanwhile the valuation shop keeps the lights on every quarter.
The result is a franchise with less all-or-nothing risk than typical deal shops and more ways to win across the cycle.
Action Plan
Starter buy: $182–$192 (shares recently around $188–$192). You’re paying a quality tax, so ease in.
Add on proof: Above $200 on clean results or another guidance raise, especially if hiring and backlog accelerate.
Initial target (6–12 months): $210–$220, roughly back to the 52-week high plus a bit if estimates keep drifting higher.
Stretch target (12–18 months): $235–$245 if M&A volumes normalize toward prior peaks and restructuring stays busy enough to smooth the ride.
Risk line: Reassess if shares break below $170 alongside a marked slowdown in announced deals or visible fee rate pressure.
Position size idea: keep it 2–4% of an equity sleeve. It’s still finance, not a utility.
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Recent Momentum
The stock is up about 10% year to date and just under 10% over the past year, which is downright modest for a bank that’s been compounding like a champ.
Street models point to double-digit earnings growth this year, aided by a thaw in deal-making, better CEO confidence, and a deep middle-market pipeline.
Cash flow growth has also been strong, which matters because advisory houses live and die on comp expense, recruiting, and the ability to pay people without breaking the model.
Dividends won’t pay your rent, but they sweeten the hold.
The yield sits around 1.2–1.3% with a habit of regular bumps, and a net-cash balance sheet leaves optionality for special payouts or M&A if management sees good returns.
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What You’re Actually Betting On
You’re not betting on one mega acquisition. You’re betting on:
Relationships and hiring: senior bankers bring clients, clients bring deals, deals bring more senior bankers.
Cross-sell: a sell-side assignment leads to a valuation gig, which leads to capital markets advice, which leads to a board mandate next quarter.
Cycle hedging: when buyouts slow, stressed balance sheets appear; when pain fades, exit activity and strategic deals return.
Culture: high-touch, execution-heavy work that keeps win rates and fee rates healthy.
If that machine keeps turning, you don’t need perfect macro. You just need busy.
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Valuation Check
At roughly 25x forward earnings (give or take, depending on whose estimates you use) and ~32x on trailing, HLI is not cheap versus broad financials.
It is, however, often cheaper than it looks because estimates tend to climb when deal calendars improve. Also note:
Quality premium justified. Above-peer revenue growth, a sticky valuation franchise, and a credible restructuring arm.
Capital light. Advisory banks need people, not factories. That often means high returns on equity through the cycle.
Dividend plus buybacks. Payout is conservative, leaving room to raise, and buybacks can offset stock comp in bigger years.
If you want deep value, you won’t find it here. If you want durable compounding with less cyclic whiplash than pure M&A shops, the multiple makes sense.
Catalysts to Watch
Global M&A prints. Watch monthly announced volumes and mega-cap sponsor activity. A rising tide lifts the fee boat.
Hiring and headcount mix. Senior lateral hires signal confidence and near-term revenue adds.
Fee rates and conversion. Backlog turning into signed deals, and fees holding firm, are the heartbeat.
Restructuring pipeline. Credit spreads up or bank lending tighter? Oddly good for HLI’s counter-cyclical muscle.
Shareholder returns. Any special dividends, buyback acceleration, or small strategic acquisitions.
Risks (Because this isn’t a brunch menu)
Deal freeze. If rates jump or geopolitics spook boards again, signings slide and advisory revenue softens.
Talent wars. Star bankers are mobile and expensive. Overpaying to recruit or retain can squeeze margins.
Pricing pressure. Competition from bulge brackets and boutiques can nick fee rates in slow quarters.
Concentration. Middle-market focus is a strength, but certain sectors can go quiet at the wrong time.
Regulation or litigation. Low probability, non-zero headache for any advisor with a large valuation practice.
How I’d Trade It
Buy weakness near earnings if chatter turns cautious on macro while HLI’s own backlog and hiring remain firm.
Scale adds after beats, not before. Let them show conversion and comp discipline, then reward it.
Trim into euphoria if we rip straight through $220 without a similar move in Street estimates. Good companies can still outrun their skis.
Quick Gut Check
Pros: multi-engine model, real growth, cash-rich, dividend you can count on, culture that recruits rainmakers.
Cons: not cheap, people-cost heavy, tied to boardroom moods, and it is still finance.
Key Actions
Start a starter position at $182–$192.
Add only on clean execution and a push above $200 with rising estimates.
Target $210–$220 first, $235–$245 on a stronger M&A tape.
Rethink below $170 if deals stall and fee rates slip.
Keep sizing modest and pair with something defensive if your portfolio skews cyclical.
Final Take
If you like the idea of owning a tollbooth on corporate decisions, HLI belongs on your list.
It’s a deal machine with a safety net, a valuation shop that keeps humming, and a balance sheet that lets management play offense.
You’re paying up for quality, but you’re also getting a business that tends to get busy no matter which way the wind blows.
For long-term investors, that’s a pretty good way to get paid while other people do the deals.
That’s all for today. Thank you for reading. If you have any feedback, please reply to this email.
Best Regards,
— Adam Garcia
Elite Trade Club
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