Do Greenhill's Misfortunes Present a Good Buying Opportunity?

How badly has Greenhill investment bank suffered in 2011? First, the AT&T T and T-Mobile merger fell through. This action affected all of the advisers taking part in the deal, including Greenhill GHL. Not only did Greenhill lose out on millions of dollars in fees, but the dissolution sent the bank spiraling down in league tables. More recently, a tragic plane crash in Morristown, New Jersey costed the bank two prominent managing directors.

Taking into account the accident, a total of three senior bankers departed the firm in the last six months, a record set since the company's inception. Investors are wondering, however, if the bank's recent bout of misfortune represents any overarching trends for the company.

Over the last few years, Greenhill has steadily increased its revenues from financial advisory. Their investment revenues have been very volatile over the last few years, jumping from $120,000 to $82 million and back down to $25 million. Expenses have also been steadily increasing over the years, including salaries, rent, and other client related fees. As a result, the company's revenue has hit a three year low in fiscal year 2010.

Greenhill's cash flows have trended in a volatile manner over the last few years as well. For example, large amounts of capital expenditures and debt repayments resulted in a net $129 million outflow of cash. In fiscal year 2009, capital expenditures and other investments were minimal, results in a positive influx of $12 million. Last year, capital expenditures grew slightly, resulting in a $4 million increase in cash. While it appears that Greenhill is diligent on its debt payments and is continuously growing its physical holdings, some investors may prefer a steady cash flow.

Investors may also want to analyze Greenhill via financial metrics and comparable companies analysis. When trying to determine the company's relative value, Greenhill does not have the most positive trading ratios. Its price/earnings is 36.1 versus an industry average of 14.3, its price/book is 3.7 versus an average of 0.8, and its price/sales is 4.2 versus an average of 0.7. From a growth perspective, its three year revenue and EPS growth have both been negative. However, to keep things in perspective, its fiscal year 2008 performance is what primarily brought down annualized revenue and EPS growth metrics. Lastly, it has a very positive return on equity and net margin compared to direct competitors. It also operates at a very low debt/equity ratio.

Investors may want to consider investing in financial services, and may consider the historically strong pure-service investment bank, Greenhill. Especially considering the bank's recent misfortune, investors may consider other investment banks or financial institutions. On the other hand, given economic uncertainty, some investors may be convinced that major investment banks are terrible investments. In any case, investors will have to do more independent research to figure out if any financial institution is a good idea in today's markets.

Consumers have a few options when it comes to understanding the US economy. The financial services sector is one indicator that could help investors gauge where the global economy is heading into the future. Investors should also keep up with the news via Benzinga Pro to stay on top of major developments that move markets.

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