Is There an Opportunity in Houlihan Lokey After Recent 11.7% Share Price Dip?

• Ever wondered if Houlihan Lokey stock is truly a bargain or simply riding on its reputation? You are not alone, as many investors are looking for signs of untapped value.
• The stock closed at $175.17 with a 0.9% gain over the last week, even though it is down 11.7% for the past month. Despite this dip, it is up 2.1% year-to-date and 84.3% over three years.
• Investors have been responding to industry updates and evolving market sentiment, which has shaped recent price moves. Headlines surrounding increased activity in M&A advisory, along with shifts in financial sector regulations, are offering new context to Houlihan Lokey's performance in the market.
• The company’s current valuation score is 1 out of 6, meaning it looks undervalued in just one measure. This article will explain how this score is determined with classic approaches and reveal an alternative way to gauge true value later on.

Houlihan Lokey scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Houlihan Lokey Excess Returns Analysis

The Excess Returns valuation model estimates a company’s worth by examining how much return it generates over and above the cost of its capital. In simple terms, the model considers how efficiently Houlihan Lokey turns its shareholders’ money into profit, then projects these “excess returns” into the future to help estimate the stock’s true value.

For Houlihan Lokey, the current Book Value is $32.04 per share, and analysts project a Stable Book Value of $35.48 per share using weighted future estimates. The company’s Stable Earnings Per Share (EPS) stands at $5.97, derived from the median Return on Equity over the past five years. Meanwhile, the Cost of Equity comes to $2.90 per share and the calculated Excess Return is $3.07 per share. Houlihan Lokey’s average Return on Equity is a solid 16.83%, which supports stable profitability going forward.

According to the Excess Returns model, Houlihan Lokey’s intrinsic value is estimated at $98.06 per share. Given a recent market price of $175.17, this model suggests the stock is approximately 78.6% overvalued based on historical returns and capital efficiency.

Result: OVERVALUED

Our Excess Returns analysis suggests Houlihan Lokey may be overvalued by 78.6%. Discover 923 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Houlihan Lokey.

Approach 2: Houlihan Lokey Price vs Earnings

The Price-to-Earnings (PE) ratio is a classic tool for valuing profitable companies, giving investors a quick snapshot of how much they are paying for each dollar of a company's earnings. This makes it especially useful for businesses like Houlihan Lokey, which maintain steady profits and positive earnings growth.

A company’s “normal” or fair PE ratio is shaped by expectations about its future growth and any risks it faces. Companies with higher expected growth rates or lower risks usually justify higher PE ratios. In contrast, slower-growing or riskier companies tend to trade at lower PE levels.

Currently, Houlihan Lokey trades at a PE ratio of 28.78x. This is well above the Capital Markets industry average of 23.59x and the average among its peers at 17.96x. Simply Wall St’s proprietary “Fair Ratio” for Houlihan Lokey is 16.35x, which adjusts for the company’s earnings growth, margins, market cap, and sector-specific risk. Unlike a simple peer comparison, the Fair Ratio incorporates a more rounded view of what the market should rationally pay for this company. This offers a more robust benchmark than just looking at the competition or broader industry trends.

Comparing the Fair Ratio to Houlihan Lokey’s actual PE ratio suggests that the stock is trading well above its fair value based on earnings potential and risk profile.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1438 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Houlihan Lokey Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is simply your story of what you believe about a company’s future. You connect the dots from the underlying business catalysts and risks, turn those into your estimate of future revenue, margins, and earnings, and then see what that means for fair value. Narratives link a company’s story to a dynamic financial forecast, so your view of what Houlihan Lokey is worth becomes clearer and reacts as real-world news or new earnings come in.

This makes Narratives a practical and accessible tool available for free on Simply Wall St's Community page, already trusted by millions of investors. With Narratives, you make investment decisions not just by comparing the current price to a simple historical metric, but by turning your beliefs and the market’s latest data into your own live valuation. For example, some investors see Houlihan Lokey’s strong expansion, buybacks, and analyst confidence as supporting a fair value as high as $232, while others, concerned about slowing M&A activity and profit margin risks, see value closer to $166. Narratives let you decide where you stand and update as your view evolves.

Do you think there's more to the story for Houlihan Lokey? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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