Greenhill: Priced for Perfection?

A few weeks ago on CNBC's Fast Monday, where I battle the guys every Thursday, one of my hits was on Greenhill & Co. (GHL), a boutique investment banking/private equity firm favored by trader Guy Adami. He likes it as a near-pure play on the M&A and private equity booms, which it is, with one caveat that I couldn't (and still can't) resist pointing out: While Greenhill has done a terrific job building itself, its stock is hovering near all-time highs, which means there's little room for error.

Investors got a slight hint of that a week ago after the company reported a fourth quarter that wasn't quite up to expectations; its stock took a slight dip. But it quickly recovered, dipping slightly again this week after the Nasdaq (ndaq) lost out in its bid to buy the London Stock Exchange.

Greenhill was one of the Nasdaq's advisers in line to reap big fees if the deal went through. The Nasdaq loss was the second in as many weeks; it was also a key adviser in MAN's dashed bid to buy Scania. Fans say the deals in question are just two in a much bigger backlog, including Ceridian (CEN), which on Tuesday retained Greenhill as an adviser to help determine alternatives to boost the share price.

But with the merger and private equity booms at what may be a vulnerable point in their respective cycles, and Greenhill's stock where it is, investors may want to revisit the concept of risk versus reward.

P.S.: Lazard (LAZ) and Evercore (EVR) are in the same boom-bust boat, to some extent. By the numbers, however, Greenhill would appear to be the most richly valued.

GHL 1-yr chart: