Hercules Capital (HTGC) vs. OFS Capital Corporation (OFS) Financial Analysis

Hercules Capital (NYSE: HTGC) and OFS Capital Corporation (NASDAQ:OFS) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their dividends, institutional ownership, valuation, analyst recommendations, risk, profitability and earnings.

Insider and Institutional Ownership

42.7% of Hercules Capital shares are held by institutional investors. Comparatively, 28.6% of OFS Capital Corporation shares are held by institutional investors. 3.9% of Hercules Capital shares are held by company insiders. Comparatively, 0.0% of OFS Capital Corporation shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Valuation and Earnings

This table compares Hercules Capital and OFS Capital Corporation’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Hercules Capital $187.39 million 5.59 $140.30 million $0.92 13.73
OFS Capital Corporation N/A N/A N/A $1.08 12.03

Hercules Capital has higher revenue and earnings than OFS Capital Corporation. OFS Capital Corporation is trading at a lower price-to-earnings ratio than Hercules Capital, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Hercules Capital and OFS Capital Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hercules Capital 38.69% 12.93% 6.76%
OFS Capital Corporation 31.02% 9.43% 4.69%

Dividends

Hercules Capital pays an annual dividend of $1.24 per share and has a dividend yield of 9.8%. OFS Capital Corporation pays an annual dividend of $1.36 per share and has a dividend yield of 10.5%. Hercules Capital pays out 134.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital Corporation pays out 125.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility & Risk

Hercules Capital has a beta of 0.85, indicating that its stock price is 15% less volatile than the S&P 500. Comparatively, OFS Capital Corporation has a beta of 0.48, indicating that its stock price is 52% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Hercules Capital and OFS Capital Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hercules Capital 1 2 5 0 2.50
OFS Capital Corporation 1 1 3 0 2.40

Hercules Capital presently has a consensus price target of $14.34, suggesting a potential upside of 13.57%. OFS Capital Corporation has a consensus price target of $14.25, suggesting a potential upside of 9.70%. Given Hercules Capital’s stronger consensus rating and higher possible upside, equities research analysts clearly believe Hercules Capital is more favorable than OFS Capital Corporation.

Summary

Hercules Capital beats OFS Capital Corporation on 11 of the 14 factors compared between the two stocks.

Hercules Capital Company Profile

Hercules Capital, Inc. is a specialty finance company. The Company is an internally managed, non-diversified, closed-end investment company. The Company focuses on providing senior secured venture growth loans to venture capital-backed companies in a range of technology, life sciences, and sustainable and renewable technology industries. The Company’s investment objective is to maximize its portfolio total return by generating current income from its debt investments and capital appreciation from its warrant and equity-related investments. The Company’s primary business objectives are to increase its net income, net operating income and net asset value (NAV) by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. The Company focuses its investments in companies active in the technology industry sub-sectors.

OFS Capital Corporation Company Profile

OFS Capital Corporation (OFS Capital) is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to provide its shareholders with both current income and capital appreciation primarily through debt investments and equity investments. It focuses primarily on middle-market companies in the United States, including senior secured loans, including first-lien, second-lien and unitranche loans, as well as subordinated loans, and warrants and other minority equity securities. The Company may make investments directly or through OFS SBIC I, LP (SBIC I LP), its investment company subsidiary. It focuses on investments in loans, in which OFS Advisor’s investment professionals have expertise, including investments in first-lien, unitranche, second-lien, and mezzanine loans and, to a lesser extent, on warrants and other equity securities. The Company’s investment activities are managed by OFS Capital Management, LLC (OFS Advisor).

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