Houlihan Lokey (HLI) Q2 Earnings Face A Margin Squeeze Narrative

Houlihan Lokey just posted Q2 2027 earnings and the stock barely flinched, up about 1.4% to around $139. That muted move hides a more charged story. Advisory fees in Corporate Finance reached about $481 million and helped lift total revenue to $692 million, yet adjusted earnings per share stayed roughly flat.

What you saw in the tape was a market shrug. Underneath is a classic margin squeeze narrative, with higher non compensation costs pressing on profitability even as activity stabilizes. The real question is whether traders are underpricing that pressure or correctly looking through it.

If you like Houlihan Lokey’s fee strength but are uneasy about the margin squeeze from rising costs and prefer businesses with sturdier profitability profiles instead, take a look at our screener of list of solid balance sheet and fundamentals stocks (22 results).

Q2 2027 Earnings Summary

• Total Revenue (Q2 2027 vs. Q2 2026): US$692 million vs. US$659.452 million (up about 5%)
• Net Income, Excl. Extra Items (Q2 2027 vs. Q2 2026): US$109 million vs. US$111.781 million (slightly lower)
• Basic EPS (Q2 2027 vs. Q2 2026): US$1.64 vs. US$1.67 (modest decline)
• Corporate Finance Advisory Fees (Q2 2027 vs. Q2 2026): approximately US$481 million vs. an implied lower prior period, with revenue supported by higher average transaction fees despite fewer closed deals

Restructuring tied to software could ramp sharply into 2028. Ask Charlie what Houlihan Lokey sees in the software shakeout.

Evaluating Houlihan Lokey’s Backlog Led Upside Case

The bullish script rests on Houlihan Lokey turning a heavy pipeline into higher fee power while keeping costs disciplined.

"The main thing that has to go right is that Corporate Finance revenue, including Capital Solutions and technology related mandates, resumes earning fees in line with the current record backlog and pipeline while the firm holds its adjusted compensation ratio and manages rising non compensation expenses."

Corporate Finance revenue did move 10% higher on fewer deals, which supports the backlog conversion story. The compensation ratio held at 61.5%. Non compensation costs, though, rose 11% and the non comp ratio climbed to 13.3%. Flat adjusted EPS shows that stronger advisory fees are not yet overcoming that cost creep.

That disagreement has a full argument behind it. → Uncover the higher Fair Value this Narrative argues for.

Houlihan Lokey Bear Case: Backlog Strength, Margin Strain

Bearish investors argue that Houlihan Lokey faces a structural earnings drag from costs and fee pressure, not just timing noise.

"Although investment in data, technology and AI, including the build out of the DataBank product and efforts to automate workflows, is intended to offset pricing pressure, management already sees a decade of fee compression in valuation services and expects it to continue."

The latest quarter does not show that pressure easing. Financial & Valuation Advisory revenue grew 7%, yet the adjusted non comp ratio climbed to 13.3% as expenses rose 11% and adjusted EPS stayed flat. Backlog conversion is working in Corporate Finance, but operating leverage has not appeared, which leans toward the bearish read on margin risk.

Hunt For Quiet Disconnects

Houlihan Lokey just showed how earnings beats and margin stories can coexist with a muted share price move. The real opportunity sits in finding stocks that could be undervalued before the market connects the dots.

• Company 1 - 32% below our estimate - builds AI focused superclusters that large model developers use when cloud setups hit capacity and resilience limits.
• Company 2 - 40% below our estimate - expands coconut based drinks as retailers shift shelf space to a single supplier for branded and private label hydration.
• Company 3 - 36% below our estimate - grows device recommerce volumes as trade in subsidies and eco policies push consumers to upgrade through structured recycling programs.

Those are three of them. See the full list of 30 companies trading below our fair value estimates →

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