In the search for investment opportunities, many investors seek to combine the forward-looking promise of fundamental strength with the timing signals provided by technical analysis. One such strategy involves screening for strong growth stocks that are also showing promising technical breakout patterns. The logic is clear: find companies with solid and improving financial performance, such as high sales and earnings growth, good profitability, and a sound balance sheet, and then look for a point where the stock's price action indicates a possible shift in momentum. This combination seeks to find businesses ready for growth just as market opinion may be shifting to support them, possibly offering a good entry point.
Houlihan Lokey Inc (NYSE:HLI) recently appeared from this type of screening method. As a top global investment bank focused on mergers and acquisitions, capital markets, financial restructuring, and valuation, its business is naturally connected to corporate activity. The fundamental argument for HLI as a growth stock seems strong when reviewing its recent financial path.
Fundamental Growth Profile
The company's fundamental report from ChartMill gives it a Growth rating of 7 out of 10, signaling performance that is good compared to its industry peers in the Capital Markets sector. This score is based on notable historical and expected expansion.
- Past Performance: Over the last year, Houlihan Lokey has shown considerable growth, with Earnings Per Share (EPS) rising by 40.97% and Revenue increasing by 18.05%. The longer-term view is also good, with an average yearly EPS growth of 14.36% and Revenue growth of 15.56% over recent years.
- Future Expectations: Analysts expect this progress to persist, with EPS projected to grow at an average yearly rate of 16.34% and Revenue by 13.02% in the next years. This steady growth path, from past to expected future, is a central feature of a true growth stock.
- Profitability and Health: Supporting this growth story are solid profitability measures. The company receives a Profitability rating of 7, marked by a Return on Invested Capital (ROIC) of 19.40%, which puts it in the best group of its industry. Its Financial Health rating is a neutral 6; while the company has no debt, a notable positive, its short-term liquidity ratios are about average for the industry, an aspect for investors to note.
You can review the full details of this fundamental assessment here: Fundamental Analysis Report for HLI.
Technical Setup and Breakout Potential
While the fundamentals outline a picture of a sound, growing company, the technical analysis gives context for its present market price. ChartMill's technical report currently assigns HLI a low overall rating, observing negative short- and long-term trends. However, it points out a more detailed "Setup Rating" of 7 out of 10, which is the important part in a breakout screening strategy.
This setup rating finds a possible consolidation pattern after a time of decrease. The stock has been moving in a range, with volatility lessening, which can sometimes come before a clear move. The technical report indicates a defined and significant support area between about $164.44 and $167.20, created by a meeting of trendlines. A hold above this support, followed by a move above nearby resistance (around $168.57 to $172.84), could mark the end of this consolidation and a possible breakout upward.
This technical setting is important for the combined strategy. The strict fundamental growth criteria make sure the investor is looking at a good company. The technical setup rating then tries to find a time when the stock's price, which may have been weak or adjusting, indicates it is firming and getting ready for its next move up, possibly matching the market's price discovery process with the company's underlying financial advancement.
The full technical view, including charts and specific analysis of support and resistance levels, can be found here: Technical Analysis Report for HLI.
Valuation Considerations
A growth stock is only a strong opportunity if its price does not already account for all its future potential. HLI's Valuation rating is a neutral 5. Its Price-to-Earnings (P/E) ratio of 21.30 is above the industry average but is lower than the present average for the S&P 500. More significantly, its low PEG ratio, which includes its earnings growth rate, implies the stock may be fairly valued when its growth outlook is weighed. This mix of good growth at a fair price is exactly what growth investors often try to find.
Conclusion
Houlihan Lokey Inc presents a situation where a screen for "Strong Growth Stocks with good Technical Setup Ratings" has found a company with clear fundamental progress. Its very good growth measures, high profitability, and debt-free balance sheet create a firm base. Technically, the stock is trying to form a base after a decline, with a specific support level giving a possible risk management point for investors looking for a breakout. This combination does not assure future results, but it methodically finds a situation where bettering price action might meet continued business growth.
For investors interested in reviewing other companies that presently fit this particular mix of fundamental growth and technical setup traits, you can run the screen yourself: Find Strong Growth Stocks with Good Technical Setups.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The analysis is based on data and reports from ChartMill.com, and past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
