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Is Houlihan Lokey (HLI) a Solid Growth Stock? 3 Reasons to Think "Yes"

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Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market's attention and produce exceptional returns. However, it isn't easy to find a great growth stock.

In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.

However, the task of finding cutting-edge growth stocks is made easy with the help of the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company's real growth prospects.

Houlihan Lokey (HLI - Free Report) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it carries a top Zacks Rank.

Research shows that stocks carrying the best growth features consistently beat the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.

Here are three of the most important factors that make the stock of this investment banking company a great growth pick right now.

Earnings Growth

Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Houlihan Lokey is 7.4%, investors should actually focus on the projected growth. The company's EPS is expected to grow 28.9% this year, crushing the industry average, which calls for EPS growth of 13.7%.

Impressive Asset Utilization Ratio

Asset utilization ratio -- also known as sales-to-total-assets (S/TA) ratio -- is often overlooked by investors, but it is an important indicator in growth investing. This metric shows how efficiently a firm is utilizing its assets to generate sales.

Right now, Houlihan Lokey has an S/TA ratio of 0.69, which means that the company gets $0.69 in sales for each dollar in assets. Comparing this to the industry average of 0.22, it can be said that the company is more efficient.

While the level of efficiency in generating sales matters a lot, so does the sales growth of a company. And Houlihan Lokey is well positioned from a sales growth perspective too. The company's sales are expected to grow 19.6% this year versus the industry average of 0%.

Promising Earnings Estimate Revisions

Beyond the metrics outlined above, investors should consider the trend in earnings estimate revisions. A positive trend is a plus here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

The current-year earnings estimates for Houlihan Lokey have been revising upward. The Zacks Consensus Estimate for the current year has surged 2.7% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Houlihan Lokey a Zacks Rank #2 stock, it has earned itself a Growth Score of A based on a number of factors, including the ones discussed above.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

This combination indicates that Houlihan Lokey is a potential outperformer and a solid choice for growth investors.


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