Houlihan Lokey, Inc. (HLI Quick QuoteHLI - Free Report) shares have fallen 21.3% year to date, sharply underperforming the industry’s 5.7% decline. The weakness reflects two disappointing quarters, pressure in Corporate Finance and softer technology deal activity, even as management continues to point to a healthy pipeline. Among peers, Evercore Inc. (EVR Quick QuoteEVR - Free Report) has lost 12.5% over the same period, while PJT Partners Inc. (PJT Quick QuotePJT - Free Report) has gained 9.3%.

Price Performance – HLI, EVR, PJT, Industry & S&P 500

Image Source: Zacks Investment Research

Earnings Outlook Remains Under Pressure

The Zacks Consensus Estimate for HLI’s current-year earnings stands at $6.93 per share, implying an 8.3% decline from the prior year. Over the past 60 days, the estimate has seen four downward revisions and no upward moves. The revenue consensus is $2.61 billion, suggesting a modest 0.3% year-over-year decline.

HLI has missed earnings estimates in two of the past four quarters and topped expectations twice, producing an average negative surprise of 3.8%.

What’s Holding the Stock Back

Corporate Finance, HLI’s largest business, posted a 24% revenue decline in the fiscal first quarter to $303 million. Closed transactions were nearly flat at 127 versus 125 a year earlier, but average fees fell as the deal mix shifted toward smaller assignments. Since advisory fees are often recognized when transactions close, delays in larger mandates can have an outsized effect on quarterly results.

Technology weakness added to the pressure. Management said firmwide technology-related revenues, largely tied to software, dropped about 54%, or $53 million, year over year. Lower software valuations led some clients to reassess or postpone deals, while consumer-sensitive sectors also softened. Middle East instability further delayed some closings, and many of the postponed assignments carried higher fees. Management, however, views at least part of this disruption as temporary.

Restructuring has not provided its usual offset. HLI often benefits from Financial Restructuring when conventional M&A slows, but revenues from the business fell 33% in the fiscal fourth quarter and another 8% in the first quarter of fiscal 2027. Fiscal first-quarter restructuring transactions dropped to 23 from 35, although management characterized much of this as timing-related.

Competition remains another risk. HLI faces large global banks and fast-growing independent advisory firms, some with greater resources, broader offerings and financing capabilities. That could intensify pressure on mandates, pricing and market share.

Despite the recent share-price correction, HLI does not appear particularly inexpensive relative to its industry. The stock trades at 17.48X forward earnings, below its five-year median of 20.03X but still above the industry average of 16.94X. This premium could limit upside, especially if earnings recovery remains delayed. Houlihan Lokey currently has a Value Score of D. In comparison, Evercore and PJT Partners are currently trading at 13.24X and 20.96X, respectively.

What Could Support a Rebound?

There are still meaningful positives. Management said Corporate Finance new-business activity and backlog reached record levels at the end of the fiscal first quarter. If delayed larger-fee transactions move toward completion, revenue could improve without a major rise in overall deal volume.

HLI’s diversified business mix reduces dependence on traditional dealmaking. Financial Restructuring can benefit when economic stress increases, while Financial and Valuation Advisory provides steadier fee income. This balance helps cushion earnings during softer transaction environments.

Houlihan Lokey continues to expand through acquisitions and senior hiring, strengthening its capabilities across industries and geographies. Recent deals have broadened its presence in energy and Europe, while targeted recruitment adds expertise in underrepresented areas. These investments can support market-share gains and create additional revenue opportunities.

How to Play HLI Stock Now?

Given the earnings pressure, weaker deal mix, technology softness and continued uncertainty around transaction closings, HLI’s near-term risk-reward profile remains unfavorable. Although record backlog and a diversified business mix offer recovery potential, investors may prefer to wait for clearer earnings improvement. With a Zacks Rank #5 (Strong Sell), HLI appears better avoided until operating trends show sustained stabilization.

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