Critical Survey: Prospect Capital (PSEC) vs. Invesco Bond Fund (VBF)

Prospect Capital (NASDAQ: PSEC) and Invesco Bond Fund (NYSE:VBF) are both finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, dividends, valuation, earnings, analyst recommendations, risk and institutional ownership.

Valuation & Earnings

This table compares Prospect Capital and Invesco Bond Fund’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Prospect Capital $701.05 million 3.47 $252.90 million $0.56 12.00
Invesco Bond Fund N/A N/A N/A N/A N/A

Prospect Capital has higher revenue and earnings than Invesco Bond Fund.

Volatility and Risk

Prospect Capital has a beta of 0.48, meaning that its stock price is 52% less volatile than the S&P 500. Comparatively, Invesco Bond Fund has a beta of 0.21, meaning that its stock price is 79% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for Prospect Capital and Invesco Bond Fund, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Prospect Capital 1 3 0 0 1.75
Invesco Bond Fund 0 0 0 0 N/A

Prospect Capital presently has a consensus target price of $6.50, indicating a potential downside of 3.27%. Given Prospect Capital’s higher possible upside, analysts plainly believe Prospect Capital is more favorable than Invesco Bond Fund.

Institutional & Insider Ownership

14.3% of Prospect Capital shares are held by institutional investors. Comparatively, 15.9% of Invesco Bond Fund shares are held by institutional investors. 7.1% of Prospect Capital shares are held by insiders. Comparatively, 1.0% of Invesco Bond Fund shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Prospect Capital and Invesco Bond Fund’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Prospect Capital 31.02% 8.36% 4.62%
Invesco Bond Fund N/A N/A N/A

Dividends

Prospect Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.7%. Invesco Bond Fund pays an annual dividend of $0.83 per share and has a dividend yield of 4.5%. Prospect Capital pays out 128.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Prospect Capital beats Invesco Bond Fund on 8 of the 10 factors compared between the two stocks.

Prospect Capital Company Profile

Prospect Capital Corporation is a financial services company. The Company primarily lends to and invests in middle market privately held companies. The Company is a closed-end investment company. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The Company invests primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. The Company makes investments, including lending in private equity sponsored transactions, lending directly to companies not owned by private equity firms, control investments in corporate operating companies, control investments in financial companies, investments in structured credit, real estate investments, investments in syndicated debt, aircraft leasing and online lending. The Company is managed by its investment advisor, Prospect Capital Management L.P.

Invesco Bond Fund Company Profile

Invesco Bond Fund is a diversified, closed-end management investment company. The Fund’s investment objective is to seek interest income while conserving capital. The Fund invests primarily in fixed-rate the United States investment-grade corporate bonds with flexibility to integrate approximately 20% of its total assets in non-investment-grade, the United States dollar denominated and non-United States dollar denominated securities of foreign issuers (both developed and emerging markets). The Fund also invests in government securities, asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The Fund also invests in derivatives and other instruments that have similar economic characteristics to securities, in which it invests. Invesco Advisers, Inc. serves as the investment advisor of the Fund.

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