This unknown company beats investment banks at their own game
When it comes to investment banks, the first companies that many investors think of are Goldman Sachs, JPMorgan Chase, and Morgan stanley. What if I told you that there is an investment bank whose stock has outperformed these others since its IPO a little over five years ago?
This company is Houlihan Lokey (NYSE: HLI), an investment bank created in 1972 and gone public in August 2015. Since its first day of listing, this little-known investment bank has generated gains of over 300% for investors, crushing its peers as well as the market in the sense large, which gained over 120% over the same period.
The investment bank did a remarkable job of navigating the pandemic last year, seeing some segments outperform in some quarters while others lagged behind, giving its earnings stability and growth and resulting in strong stock market performance. Not only that, but the CEO of the company is optimistic about the current environment and the prospects for future growth.
Meet Houlihan Lokey, the little-known investment bank
Houlihan Lokey is a global investment bank specializing in mergers and acquisitions (M&A), capital markets, financial restructuring and valuation advisory services. The company has operations in the United States, 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 was ranked the # 1 M&A advisor in the United States, closing 210 deals, according to data from Refinitiv. This places it above the well-known investment banks Goldman Sachs and JPMorgan Chase, which have completed 172 and 132 deals, respectively.
Not only that, but the company is also the world’s leading restructuring advisor, having completed 106 deals in 2020. This places it well ahead of its next two competitors, PJT Partners and Lazard, with 63 and 50 transactions, respectively, according to Refinitiv.
Since its IPO, Houlihan Lokey has outperformed all of its major investment bank competitors, returning investors a total of 314% during that period. Its closest competitor, Morgan Stanley, posted a 166% return over the same period.
A history of solid financial performance
Over the past five years, Houlihan Lokey has shown exceptional results, growing its revenue at a compound annual growth rate of 17%. During the same period, its adjusted pre-tax profit increased 23%, compounded annually, while its net profit increased annually by 35%.
Houlihan Lokey says his mix of activities gives him resilience vis-à-vis cyclical and counter-cyclical activities. Last year was a good example. In the spring of 2020, the global pandemic wreaked havoc on the business environment and plunged the economy into a spin. The financial restructuring activity saw a sharp increase in activity in the face of many uncertainties, and Houlihan Lokey took advantage. During this same period, M&A activity plummeted.
Then, in the fall, the trends changed. Restructuring activity was down, but M&A activity recovered. As a result, the company posted strong results for its 2021 fiscal year (which ended March 31), when it posted record revenue of $ 1.5 billion, a growth of 32%. compared to the previous year. Operating profit of $ 408 million increased 78% from the previous year. Not only that, but the investment bank has seen its revenues increase for nine consecutive years at a compound annual growth rate of 14%.
Corporate finance, which covers mergers and acquisitions and capital markets advice, is its largest segment, with revenues of $ 803 million last year, or 52% of total revenues. total business. This segment has experienced compound annual growth of 17% over the past five years.
The second most important segment of the company is financial restructuring, which concerns bankruptcy and insolvency proceedings and accounts for 35% of total turnover. This segment grossed $ 535 million last year and has experienced compound annual growth of 21% over the past five years.
“One of the most bullish market environments” for the company in its history
Houlihan Lokey is optimistic for the coming year. CEO Scott Beiser said the coming fiscal year is one of the most bullish market environments for the company in its history. Beiser mentioned record levels for new business activities, mandated commitments, transaction sizes, and estimated transaction and project costs. The company also noted that global M&A deals were up 7.7% in the first quarter compared to a year ago.
Houlihan Lokey has managed to increase his income steadily despite volatile economic times. Investment banking is relatively unknown to investors and certainly deserves more attention than it receives. His exceptional stock market performance over five years, coupled with the positive market environment for his company, makes Houlihan Lokey a company worthy of further consideration by investors.
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