This Undiscovered Company Is Beating Investment Banks at Their Own Game


When it comes to investment banks, the first companies many investors think of are Goldman Sachs, JPMorgan Chase, and Morgan Stanley. What if I told you there is an investment bank whose stock has outperformed these others since it went public a little over five years ago?

That company is Houlihan Lokey (NYSE:HLI), an investment bank formed in 1972 that went public in August 2015. Since its first day of trading, this undiscovered investment bank has delivered investors gains of more than 300%, crushing its peers as well as the broader market, which has gained more than 120% during the same period.  

The investment bank did a stellar job of navigating the pandemic last year, seeing some segments outperform in certain quarters as others lagged, giving its earnings stability and growth and resulting in strong stock performance. Not only that, but the company’s CEO is optimistic about the current environment and prospects for future growth.

Meet Houlihan Lokey, the unsung investment bank

Houlihan Lokey is a global investment bank with a focus on mergers and acquisitions (M&A), capital markets, financial restructurings, and advisory services on valuations. The company has locations in the U.S., Europe, the Middle East, and the Asia-Pacific region and operates in three segments: corporate finance, financial restructuring, and financial valuation and advisory.  

In 2020, Houlihan Lokey ranked as the No. 1 advisor in the U.S. in mergers and acquisitions, completing 210 deals, according to data from Refinitiv. This puts it above well-known investment banks Goldman Sachs and JPMorgan Chase, which had 172 and 132 deals, respectively.  

Not only that, but the company is the No. 1 global restructuring advisor as well, having made 106 deals in 2020. This puts it well ahead of its next two competitors, PJT Partners and Lazard, with 63 and 50 deals respectively, according to Refinitiv. 

Since going public, Houlihan Lokey has outperformed all of its big-name investment bank competitors, returning investors a total of 314% during that time. Its closest competitor, Morgan Stanley, has returned 166% during the same period.  

A history of solid financial performance

Over the past five years, Houlihan Lokey has posted stellar results, growing its revenue at a 17% compound annual growth rate. During this same period, its adjusted pre-tax income has grown at 23%, compounded annually, while its net income has compounded annually at 35%.  

Houlihan Lokey says that its business mix gives it resiliency with both cyclical and countercyclical businesses. Last year was a good example of this. In spring 2020, the global pandemic wreaked havoc on the business environment and threw the economy into a tailspin. Financial restructuring activity saw a big increase in activity in the face of much uncertainty, and Houlihan Lokey benefited. During this same period, M&A activity fell. 

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Then, in the fall, the trends shifted. Restructuring activity was on the decline, but M&A activity saw a pickup. As a result, the company posted solid results for its fiscal 2021 (which ended March 31), when it posted record revenue of $1.5 billion, a growth of 32% from the year before. Operating income of $408 million was up 78% from the year before. Not only that, but the investment bank has seen revenue grow for nine consecutive years at a 14% compound annual growth rate.  

Corporate finance, which relates to M&A and capital markets advisory, is its biggest segment, with revenue of $803 million last year, representing 52% of total revenues. This segment has grown at a 17% compound annual growth rate over the past five years.  

The company’s next-biggest segment is financial restructuring, which relates to bankruptcy proceedings and insolvency and accounts for 35% of total revenue. This segment brought in $535 million last year and has grown at a 21% compound annual growth rate over the past five years.  

“One of the most bullish market environments” for the business in its history

Houlihan Lokey is optimistic about the year ahead. CEO Scott Beiser said the upcoming fiscal year is one of the most bullish market environments for the business in its history. Beiser mentioned record levels for new business activity, mandated engagements, transaction size, and estimated transaction and project fees. The company also noted that global M&A transactions were up 7.7% in the first quarter compared to last year.  

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Houlihan Lokey has managed to grow revenue consistently despite volatile economic times. The investment bank is relatively unknown by investors and is certainly deserving of more attention than it gets. Its stellar five-year stock performance coupled with the positive market environment for its business makes Houlihan Lokey a company worthy of further consideration by investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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