Is There Now an Opportunity in Houlihan Lokey After Its 6.7% Dip This Month?

Thinking about Houlihan Lokey stock right now? You are definitely not alone. After all, with a five-year return of 238.9% and a solid 13.1% gain so far this year, it is completely understandable for investors to be watching every move. While the stock’s recent one-year climb of 18.3% shows this firm’s staying power, it is the slight dip of 6.7% over the last month that has some holders second guessing and potential buyers wondering if there is an opportunity at hand.

Zooming out, Houlihan Lokey’s share price story centers around both long-term execution and fresh market context. Financial advisory services have been in the spotlight as M&A chatter heats up again, and updates on the expanding role of boutique banks add to the attention. These headline shifts regularly nudge investor sentiment, making the gentle week-long bump of 0.7% more of a steady footnote than a loud signal.

When it comes to valuation, though, pure momentum only tells half the story. Looking at our six major undervaluation checks, Houlihan Lokey’s score is a straightforward 0, with the company not clearing any of our “undervalued” markers in the current market environment. But numbers alone never tell the whole story either. Let us break down the different valuation approaches investors rely on, then explore why there might be an even deeper way to understand what the market is really saying about this stock’s worth.

Houlihan Lokey scores just 0/6 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 model evaluates a company by measuring how much return it generates on invested equity above its cost of capital, highlighting whether the firm creates value for shareholders over time. For Houlihan Lokey, the most recent data points to a Book Value of $30.96 per share and a Stable EPS of $6.15 per share, derived from the median return on equity over the past five years. The company's average Return on Equity stands at a robust 17.4%.

With a Cost of Equity at $2.87 per share, Houlihan Lokey’s Excess Return comes in at $3.28 per share. This indicates the business is strongly profitable in absolute terms, generating returns well above its required threshold. Furthermore, the Stable Book Value is projected at $35.35 per share, based on the weighted future book value estimates from three analysts. This suggests a trend of measured growth in shareholder equity.

Despite these fundamentally strong metrics, the Excess Returns model concludes the intrinsic value of the stock is significantly below the current price. This implies the shares are 93.3% overvalued through this lens. Investors should take this signal seriously as it suggests the market may be pricing in much more optimism than the fundamentals justify.

Result: OVERVALUED

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

Our Excess Returns analysis suggests Houlihan Lokey may be overvalued by 93.3%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Houlihan Lokey Price vs Earnings (PE)

For profitable firms like Houlihan Lokey, the Price-to-Earnings (PE) ratio is a widely used and effective valuation tool because it directly relates a company’s share price to its current earnings per share. This helps investors understand how much they are paying for a slice of the company’s profits right now, making it especially relevant when earnings are consistent and positive.

The PE ratio, however, should not be viewed in isolation. Growth expectations and risk significantly influence what counts as a “fair” PE. Companies with higher growth prospects or lower risk typically command higher PE multiples, while those facing tougher outlooks or greater uncertainty warrant lower figures.

Currently, Houlihan Lokey trades at a PE ratio of 33.4x. This is substantially above both its peer average of 18.7x and the Capital Markets industry average of 25.9x. At first glance, these comparisons might suggest the stock is priced for much more growth or offers lower risk than its rivals. However, relying solely on peer or sector averages can miss the nuances that affect an individual company’s outlook.

This is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio for Houlihan Lokey stands at 18.0x, representing a balanced multiple that incorporates not just industry and profit margin but also factors like earnings momentum, market cap, and company-specific risks. Because it is tailored for the company’s unique fundamentals and future trajectory, the Fair Ratio provides a more holistic view than blunt peer or sector comparisons.

With Houlihan Lokey’s actual PE of 33.4x well above its Fair Ratio benchmark of 18.0x, the implication is clear: the shares are trading at a considerable premium to what its fundamentals would suggest is reasonable.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 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 a company's value, so let us introduce "Narratives." A Narrative is a unique investment story that connects your personal view of a company, such as expectations for revenue, profit margins, and fair value, to a meaningful financial forecast and ultimately a calculated fair value. Narratives make investing personal and practical by allowing you to express your reasoning behind the numbers, rather than just accepting generic models or averages.

On Simply Wall St’s platform, Narratives are easy to access and update within the Community page. This empowers millions of investors to track, compare, and refine their investment theses dynamically as new news or earnings data arrives. This tool helps you make smarter buy or sell decisions by showing whether your view of Houlihan Lokey’s fair value is above or below the current price, and updating that view whenever the market changes. For instance, one investor might craft a bullish Narrative based on expanding global advisory revenues and project a fair value as high as $232 per share. Another’s more cautious assumptions about margin stability could lead to a fair value closer to $166. Narratives put you in control, ensuring your investment decision genuinely reflects both the market facts and your own perspective.

Do you think there's more to the story for Houlihan Lokey? Create your own Narrative to let the Community know!

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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