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Hedge Funds Are Betting On Houlihan Lokey Inc (HLI)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 5.2% over the 12-month period ending October 30, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey (as of September 2014) generated a return of 9.5% over the same time span, with 63% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Houlihan Lokey Inc (NYSE:HLI).

Is Houlihan Lokey Inc (NYSE:HLI) a buy, sell, or hold? The stock went public in August and managed to attract some attention from smart money investors. Among the funds tracked by Insider Monkey, a total of 13 funds reported long positions in the company as of the end of September. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Jumei International Holding Ltd (ADR) (NYSE:JMEI), National Beverage Corp. (NASDAQ:FIZZ), and MGE Energy, Inc. (NASDAQ:MGEE) to gather more data points.

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In the financial world there are many formulas shareholders put to use to evaluate stocks. A pair of the most under-the-radar formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the best investment managers can outpace the market by a very impressive margin (see the details here).

Keeping this in mind, we’re going to review the latest action regarding Houlihan Lokey Inc (NYSE:HLI).

What have hedge funds been doing with Houlihan Lokey Inc (NYSE:HLI)?

As stated earlier, a total of 13 funds reported ownership of Houlihan Lokey’s shares in the last round of 13F filing. Among them, Basswood Capital, managed by Matthew Lindenbaum, holds the biggest position, worth $12.3 million, comprising 0.6% of its 13F portfolio. On Basswood Capital’s heels is Sharif Siddiqui’s Alpenglow Capital, with a $9.8 million position; 8.5% of its 13F portfolio is allocated to the company. Some other peers with similar optimism contain Israel Englander’s Millennium Management, Andrew Goldman’s Seven Locks Capital Management, and Gunnar Overstrom’s Three Corner Global Investors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Houlihan Lokey Inc (NYSE:HLI) but similarly valued. These stocks are Jumei International Holding Ltd (ADR) (NYSE:JMEI), National Beverage Corp. (NASDAQ:FIZZ), MGE Energy, Inc. (NASDAQ:MGEE), and Simmons First National Corporation (NASDAQ:SFNC). This group of stocks’ market valuations resemble HLI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JMEI 13 32592 -2
FIZZ 8 24960 0
MGEE 7 17567 1
SFNC 5 10682 -3

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. In HLI, the funds amassed stakes worth $66 million. Simmons First National Corporation (NASDAQ:SFNC) is the least popular stock in this table with only 5 bullish hedge fund positions, while Jumei International Holding Ltd (ADR) (NYSE:JMEI) is the most popular stock, with a total of 13 funds holding shares, which is the same as in HLI’ case. This suggests that HLI might be an attractive stock to buy, but further research is required before making a decision.

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