Contrasting TCP Capital (TCPC) and Gladstone Capital (GLAD)

TCP Capital (NASDAQ: TCPC) and Gladstone Capital (NASDAQ:GLAD) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their earnings, risk, profitability, dividends, analyst recommendations, valuation and institutional ownership.

Insider & Institutional Ownership

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52.9% of TCP Capital shares are held by institutional investors. Comparatively, 13.6% of Gladstone Capital shares are held by institutional investors. 0.6% of TCP Capital shares are held by insiders. Comparatively, 5.9% of Gladstone Capital shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares TCP Capital and Gladstone Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
TCP Capital 42.13% 12.63% 6.96%
Gladstone Capital 58.48% 9.97% 5.95%

Valuation & Earnings

This table compares TCP Capital and Gladstone Capital’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
TCP Capital $175.97 million 4.75 $90.61 million $1.99 7.14
Gladstone Capital $39.23 million 5.87 $17.18 million $0.84 10.30

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

Dividends

TCP Capital pays an annual dividend of $1.44 per share and has a dividend yield of 10.1%. Gladstone Capital pays an annual dividend of $0.84 per share and has a dividend yield of 9.7%. TCP Capital pays out 72.4% of its earnings in the form of a dividend. Gladstone Capital pays out 100.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. TCP Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

TCP Capital has a beta of 0.67, suggesting that its stock price is 33% less volatile than the S&P 500. Comparatively, Gladstone Capital has a beta of 1.09, suggesting that its stock price is 9% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent ratings and price targets for TCP Capital and Gladstone Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
TCP Capital 0 0 7 0 3.00
Gladstone Capital 0 3 1 0 2.25

TCP Capital presently has a consensus target price of $17.67, indicating a potential upside of 24.41%. Gladstone Capital has a consensus target price of $8.88, indicating a potential upside of 2.70%. Given TCP Capital’s stronger consensus rating and higher possible upside, research analysts clearly believe TCP Capital is more favorable than Gladstone Capital.

Summary

TCP Capital beats Gladstone Capital on 11 of the 16 factors compared between the two stocks.

TCP Capital Company Profile

TCP Capital Corp. is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection. It invests in the debt of middle-market companies, as well as small businesses, including senior secured loans, junior loans, mezzanine debt and bonds. Its investments may include an equity component and may make equity investments directly. It intends to focus on privately negotiated investments in debt of middle-market companies. It may make investments of all kinds and at all levels of the capital structure, including in equity interests, such as preferred or common stock and warrants or options received in connection with its debt investments. As of December 31, 2016, its investment portfolio consisted of 90 portfolio companies. Tennenbaum Capital Partners, LLC is the investment manager and advisor of the Company.

Gladstone Capital Company Profile

Gladstone Capital Corporation is a closed-end, non-diversified management investment company, operating as a business development company (BDC). The objectives of the Company are to achieve and grow current income by investing in debt securities of established businesses that it believes will provide stable earnings and cash flow to pay expenses, make principal and interest payments on its outstanding indebtedness and make distributions to stockholders that grow over time, and to provide its stockholders with long-term capital appreciation in the value of its assets by investing in equity securities of established businesses that it believes can grow over time to permit it to sell its equity investments for capital gains. The Company is focused on investing in lower middle-market companies in the United States. It has investments in south, Midwest, west and northeast of the United States. Its portfolio allocation includes debt investments and equity investments.

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