Houlihan Lokey (HLI): Navigating Mixed Signals in Options Trading

Houlihan Lokey is a global independent investment bank specializing in M&A, capital markets, financial restructurings, and financial and valuation advisory. The firm serves corporations, financial sponsors, and government agencies worldwide. Its core business practices are 'Corporate Finance' (CF), encompassing M&A and Capital Solutions; 'Financial Restructuring' (FR), including both out-of-court and formal insolvency proceedings; and 'Financial and Valuation Advisory' (FVA), which includes financial opinions and consulting. Houlihan Lokey differentiates itself through independent advice, intellectual rigor, and consistent senior-level involvement. The firm focuses on advisory products and market segments where its expertise is differentiating, and it avoids conflicts of interest by not engaging in lending, securities sales, trading, or research.

The addition of a Managing Director to Houlihan Lokey's global Consumer Group is a mildly positive development. While not a game-changer, expanding the team with experienced personnel from JP Morgan suggests a strategic focus on growth within the consumer sector and confidence in future deal flow. The impact on HLI's stock price over the next 1-2 weeks is likely to be muted, as this type of news typically doesn't trigger significant immediate reactions. However, it could contribute to a slightly positive sentiment, especially if the broader market conditions are favorable. Given the absence of other company-specific or significant macro news, the score reflects a slightly optimistic outlook, acknowledging the positive but limited impact of this personnel addition. The expansion in London could signal increased activity in the European market, further supporting long-term growth. The appointment demonstrates a continued investment in talent, which is generally viewed favorably by investors.

HLI's technical outlook is bearish. The recent price action shows a sharp decline from a high of $211.37 on September 23rd to $178.07 on November 3rd, followed by a slight recovery to $179.05 on November 4th. The price is trading below its 21-day EMA, currently at 193.92, and its 50-day SMA, which is at 198.30. The 200-day SMA is at 180.67. Momentum indicators also point to weakness. The MACD is negative and trending downward, with the MACD line below the signal line, reinforcing the bearish sentiment. The RSI is at 29.86, indicating an oversold condition, but this could also signal continued downward momentum rather than an immediate reversal. The STOCHk is at 26.58, further confirming the downward trend. The ATR has increased to 5.48, suggesting increased volatility and potentially larger price swings to the downside. Overall, the technical indicators suggest continued downward pressure on HLI in the short to medium term.

Houlihan Lokey's MD&A presents a positive but nuanced picture. Total `Revenues` increased by 18% to $605.3 million for the three months ended June 30, 2025, driven primarily by a 21% increase in Corporate Finance (CF) revenues. Financial Restructuring (FR) revenues also rose by 9%, and Financial and Valuation Advisory (FVA) revenues increased by 16%. However, operating income decreased by 5% to $89.8 million, as operating expenses increased by 23% to $515.5 million. The `Compensation Ratio` increased slightly to 64.9% from 64.3%. `Net cash used in operating activities` was $(131.6) million, primarily due to cash bonus payments. The company states its liquidity is 'highly dependent upon cash receipts from clients that are generally dependent upon the successful completion of transactions'. While the company expects to remain in compliance with its debt covenants, the increased corporate expenses and cash outflow in operating activities warrant attention. The increase in CF revenue was 'driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions'.

Houlihan Lokey's Q1 fiscal year 2026 earnings call paints a moderately bullish picture, characterized by solid performance across all three business lines. The company reported revenues of $605 million, up 18%, and adjusted earnings per share of $2.14, up 75% compared to the same quarter last year. CEO Scott Adelson noted that their 'views of current market conditions and our business are broadly consistent with what we shared last quarter,' indicating a steady outlook. Corporate Finance revenue increased by 21% to $399 million, driven by improvements in key metrics despite 'muted activity from the financial sponsor community.' Financial Restructuring saw a 9% increase to $128 million, fueled by higher interest rates and macro uncertainty, with expectations for 'elevated restructuring revenues throughout fiscal 2026.' Financial and Valuation Advisory also experienced a 16% increase to $79 million. CFO Lindsey Alley expects to 'maintain our long-term target of 61.5% for our adjusted compensation expense ratio for the balance of the year,' providing stability in expense management. While cautiously optimistic due to market volatility, management appears confident in their diversified business model and global reach.

HLI's financial performance presents a somewhat positive picture, though with some caveats. Revenue has generally trended upwards, from $513.6M in Q1 2024 to $659.5M in Q2 2025, suggesting healthy top-line growth. The gross profit ratio has remained relatively stable, fluctuating around 0.385 before dipping slightly to 0.335 in the most recent quarter. Operating cash flow, while not available for the latest quarter, was a negative -$131.6M in Q1 2026, following a strong positive $358.4M in Q4 2025, indicating volatility in short-term liquidity. Total debt has remained relatively stable around $430M, beginning at $435.2M in Q1 2024 and ending at $0 in Q2 2025. The company maintains a large cash position, with $923.6M in cash and cash equivalents in the most recent quarter. While revenue is growing and debt is stable, the inconsistent operating cash flow and slight dip in gross profit ratio warrant further scrutiny to ensure sustained profitability and financial stability.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting effective cost management. Return on Equity (ROE) has improved, showcasing efficient capital allocation. While the Price-to-Earnings (P/E) ratio is elevated, it is potentially justified by the company's growth prospects. The Debt-to-Equity ratio has decreased, reflecting a healthier balance sheet and reduced financial risk. The current ratio is at a healthy level, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable combination of growth, profitability, and balance sheet strength, supporting a positive outlook for the next 12 months, although the high P/E ratio warrants close monitoring.