THL Credit (NASDAQ: TCRD) and Capitala Finance (NASDAQ:CPTA) are both small-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their earnings, valuation, profitability, analyst recommendations, dividends, institutional ownership and risk.
Risk and Volatility
THL Credit has a beta of 1.05, suggesting that its stock price is 5% more volatile than the S&P 500. Comparatively, Capitala Finance has a beta of 1.06, suggesting that its stock price is 6% more volatile than the S&P 500.
THL Credit pays an annual dividend of $1.08 per share and has a dividend yield of 12.6%. Capitala Finance pays an annual dividend of $1.00 per share and has a dividend yield of 13.4%. THL Credit pays out 189.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capitala Finance pays out 909.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.
Earnings and Valuation
This table compares THL Credit and Capitala Finance’s gross revenue, earnings per share and valuation.
||Earnings Per Share
THL Credit has higher revenue and earnings than Capitala Finance. THL Credit is trading at a lower price-to-earnings ratio than Capitala Finance, indicating that it is currently the more affordable of the two stocks.
Institutional and Insider Ownership
43.3% of THL Credit shares are owned by institutional investors. Comparatively, 18.2% of Capitala Finance shares are owned by institutional investors. 9.4% of THL Credit shares are owned by insiders. Comparatively, 8.4% of Capitala Finance shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.
This table compares THL Credit and Capitala Finance’s net margins, return on equity and return on assets.
||Return on Equity
||Return on Assets
This is a breakdown of current recommendations and price targets for THL Credit and Capitala Finance, as reported by MarketBeat.
||Strong Buy Ratings
THL Credit presently has a consensus price target of $10.70, suggesting a potential upside of 24.71%. Capitala Finance has a consensus price target of $13.50, suggesting a potential upside of 81.45%. Given Capitala Finance’s higher probable upside, analysts plainly believe Capitala Finance is more favorable than THL Credit.
THL Credit beats Capitala Finance on 13 of the 16 factors compared between the two stocks.
About THL Credit
THL Credit, Inc. is an externally managed, non-diversified closed-end management investment company. The Company’s investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of lower middle market companies. The Company is a direct lender to lower middle-market companies and invests primarily in directly originated first lien senior secured loans, including unitranche investments. In certain instances, it also makes second lien secured loans and subordinated, or mezzanine, debt investments, which may include an associated equity component, such as warrants, preferred stock or similar securities, and direct equity investments. Its first lien senior secured loans may be structured as traditional first lien senior secured loans or as unitranche loans. The Company’s investment activities are managed by THL Credit Advisors LLC.
About Capitala Finance
Capitala Finance Corp. is an externally managed non-diversified, closed-end management investment company. The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. Both directly and through its subsidiaries that are licensed by the United States Small Business Administration (SBA), the Company offers financing to business owners, management teams and financial sponsors for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives. The Company provides capital to lower and traditional middle-market companies in the United States, with a non-exclusive emphasis on the Southeast, Southwest and Mid-Atlantic regions. The Company invests in first lien, second lien and subordinated loans. The Company’s investment advisor is Capitala Investment Advisors, LLC.
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