Houlihan Lokey (HLI)

Investment banking firm Houlihan Lokey (NYSE:HLI) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 14.7% year on year to $659.5 million. Its non-GAAP profit of $1.84 per share was 9.3% above analysts’ consensus estimates.

Company Overview

Founded in 1972 and known for its expertise in complex financial situations, Houlihan Lokey (NYSE:HLI) is a global investment bank specializing in mergers and acquisitions, capital markets, financial restructurings, and valuation advisory services.

Investment banks and brokerages facilitate capital raises, mergers and acquisitions, and securities trading. The sector benefits from corporate activity during economic expansion, increased retail trading participation, and advisory opportunities in emerging sectors. Headwinds include economic cycle vulnerability affecting deal flow, compressed trading commissions due to electronic platforms, and regulatory capital requirements constraining certain higher-risk activities.

Houlihan Lokey competes with other independent investment banks like Lazard (NYSE:LAZ), Evercore (NYSE:EVR), and PJT Partners (NYSE:PJT), as well as the investment banking divisions of larger financial institutions such as Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), and JPMorgan Chase (NYSE:JPM).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Houlihan Lokey’s 18% annualized revenue growth over the last five years was impressive. Its growth surpassed the average financials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Houlihan Lokey’s annualized revenue growth of 19.9% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Houlihan Lokey reported year-on-year revenue growth of 14.7%, and its $659.5 million of revenue exceeded Wall Street’s estimates by 1%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Investment Banking & Brokerage companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

Financials companies manage interest-bearing assets and liabilities, making the interest income and expenses included in pre-tax profit essential to their profit calculation. Taxes, being external factors beyond management control, are appropriately excluded from this alternative margin measure.

Over the last four years, Houlihan Lokey’s pre-tax profit margin has risen by 7.3 percentage points, going from 28.9% to 21.6%. Luckily, it seems the company has recently taken steps to address its expense base as its pre-tax profit margin expanded by 2.9 percentage points on a two-year basis.

Houlihan Lokey’s pre-tax profit margin came in at 24.3% this quarter. This result was in line with the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Houlihan Lokey’s remarkable 19.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

Houlihan Lokey’s two-year annual EPS growth of 33.5% was fantastic and topped its 19.9% two-year revenue growth.

Diving into the nuances of Houlihan Lokey’s earnings can give us a better understanding of its performance. While we mentioned earlier that Houlihan Lokey’s pre-tax profit margin was flat this quarter, a two-year view shows its margin has expanded. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Houlihan Lokey reported adjusted EPS of $1.84, up from $1.46 in the same quarter last year. This print beat analysts’ estimates by 9.3%. Over the next 12 months, Wall Street expects Houlihan Lokey’s full-year EPS of $7.58 to grow 5.4%.

Financial institutions manage complex balance sheets spanning various financial activities. Valuations reflect this complexity, emphasizing balance sheet quality and long-term book value compounding across multiple revenue streams.

This explains why tangible book value per share (TBVPS) is a premier metric for the sector. TBVPS provides concrete per-share net worth that investors can trust when evaluating companies with complex, multi-faceted business models. On the other hand, EPS is often distorted by the diverse nature of operations, mergers, and various accounting treatments across different business units. Book value provides clearer performance insights.

Houlihan Lokey’s TBVPS grew at an impressive 13.9% annual clip over the last five years. TBVPS growth has also accelerated recently, growing by 42.9% annually over the last two years from $5.26 to $10.75 per share.

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Houlihan Lokey has averaged an ROE of 22.1%, exceptional for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows Houlihan Lokey has a strong competitive moat.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Houlihan Lokey currently has $432.9 million of debt and $2.25 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.2×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 3.5× for a financials business.

It was good to see Houlihan Lokey beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $199.29 immediately following the results.

Updated: December 4, 2025 at 11:34 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Houlihan Lokey.

There is a lot to like about Houlihan Lokey. First of all, the company’s revenue growth was impressive over the last five years. And while its pre-tax profit margin didn’t move over the last five years, its stellar ROE suggests it has been a well-run company historically. Additionally, Houlihan Lokey’s remarkable EPS growth over the last five years shows its profits are trickling down to shareholders.

Houlihan Lokey’s P/E ratio based on the next 12 months is 21.8x. Looking across the spectrum of financials businesses, Houlihan Lokey’s fundamentals clearly illustrate it’s a special business. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $210.86 on the company (compared to the current share price of $179.35), implying they see 17.6% upside in buying Houlihan Lokey in the short term.