Critical Survey: Gladstone Investment (GAIN) and OFS Capital (OFS)

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

Analyst Recommendations

This is a summary of current recommendations and price targets for Gladstone Investment and OFS Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gladstone Investment 0 1 2 0 2.67
OFS Capital 0 1 1 0 2.50

Gladstone Investment presently has a consensus price target of $10.50, suggesting a potential downside of 9.95%. OFS Capital has a consensus price target of $14.00, suggesting a potential upside of 23.67%. Given OFS Capital’s higher possible upside, analysts clearly believe OFS Capital is more favorable than Gladstone Investment.

Institutional and Insider Ownership

15.3% of Gladstone Investment shares are held by institutional investors. Comparatively, 27.5% of OFS Capital shares are held by institutional investors. 2.4% of Gladstone Investment shares are held by company insiders. Comparatively, 0.0% of OFS Capital shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Risk and Volatility

Gladstone Investment has a beta of 0.53, indicating that its stock price is 47% less volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.48, indicating that its stock price is 52% less volatile than the S&P 500.

Dividends

Gladstone Investment pays an annual dividend of $0.80 per share and has a dividend yield of 6.9%. OFS Capital pays an annual dividend of $1.36 per share and has a dividend yield of 12.0%. Gladstone Investment pays out 97.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital pays out 106.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Valuation and Earnings

This table compares Gladstone Investment and OFS Capital’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Gladstone Investment $58.35 million 6.56 $60.68 million $0.82 14.22
OFS Capital $33.43 million 4.52 $7.90 million $1.28 8.84

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

Profitability

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

Net Margins Return on Equity Return on Assets
Gladstone Investment 104.00% 7.64% 4.61%
OFS Capital 19.01% 8.71% 4.55%

Summary

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

Gladstone Investment Company Profile

Gladstone Investment Corporation is a business development company specializing in buyouts; recapitalizations; refinancing existing debt; senior debt securities such as senior loans, senior term loans, lines of credit, and senior notes; senior subordinated debt securities such as senior subordinated loans and senior subordinated notes; junior subordinated debt securities such as subordinated notes and mezzanine loans; limited liability company interests, and warrants or options. The fund does not invest in start-ups. It seeks to invest in small and mid-sized companies based in the United States. The fund prefers to make debt investments between $5 million and $30 million and equity investments between $10 million and $40 million in companies. The fund seeks to invest in companies with sales between $20 million and $100 million. It seeks minority equity ownership and prefers to hold a board seat in its portfolio companies. It also prefers to take majority stake in its portfolio companies. The fund typically holds its investments for seven years and exits via sale or recapitalization, initial public offering, or sale to third party.

OFS Capital 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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