What happened

Shares of Houlihan Lokey (HLI 2.31%) climbed 13% in May, according to S&P Global Market Intelligence, outpacing the S&P 500, which ticked up less than 1% in the month.

Investors were happy with the Los Angeles-based investment bank's strong fiscal fourth-quarter performance for the period ended March 31, as the company posted record revenue. The stock price is up about 12% year to date.

So what

The firm saw revenue climb $501 million in the most recent quarter, a 65% year-over-year gain. For the fiscal year ended March 31, Houlihan Lokey reported a record $1.53 billion in revenue, up 32% over the previous year. Net income was $99.4 million in the quarter, or $1.44 per share, up 68% year over year.

A businessman smiling at his desk, holding his phone but looking off at something else.

Image source: Getty Images.

Its corporate finance business, which conducts mergers and acquisitions (M&A) and provides capital markets advisory services, was the cash cow in the quarter, generating $301 million in revenue, up 93% year over year. The company closed 154 transactions in the quarter, up from 84 a year ago.

But all systems were go, as financial restructuring saw revenue increase 38% year over year to $143 million, while valuation advisory services experienced a 32% gain in revenue to $57 million.

"Fiscal 2021 was a roller coaster year, with the first half led by restructuring and then followed by a very robust market for our M&A and valuation businesses," CEO Scott Beiser said.

Now what

As Beiser said in the earnings report, it has been a wild 12 months as M&A activity dropped in the first half of the fiscal year due to the pandemic, but restructuring revenue was strong as clients were looking to adapt. In the second half of the year, M&A started coming back while restructuring slowed.

The M&A and capital markets businesses are showing no signs of slowing down as the firm heads into fiscal year 2022, and restructuring should return to normal levels. On the most recent earnings call, Beiser called it: "one of the most bullish market environments for our M&A, capital markets, and valuation businesses in the firm's history. We are at record levels for new business activity, mandated engagements, transaction size, and estimated transaction and project fees."

Given the bullish environment, Houlihan Lokey is in good shape. It's one of the biggest players in the middle market, and its financials are strong with a fairly low debt, good cash flow, a price-to-earnings ratio of around 16, and solid 26.4% return on equity. Shares have flattened out since its May post-earnings-report surge, but it's a stock worth considering.