Head-To-Head Analysis: Gladstone Investment (GAIN) vs. Prospect Capital (PSEC)

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

Dividends

Gladstone Investment pays an annual dividend of $0.80 per share and has a dividend yield of 6.9%. Prospect Capital pays an annual dividend of $0.72 per share and has a dividend yield of 9.7%. 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. Prospect Capital pays out 91.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Investment has raised its dividend for 5 consecutive years and Prospect Capital has raised its dividend for 7 consecutive years. Prospect Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility and Risk

Gladstone Investment has a beta of 0.53, meaning that its share price is 47% less volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.57, meaning that its share price is 43% less volatile than the S&P 500.

Valuation & Earnings

This table compares Gladstone Investment and Prospect Capital’s gross 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 6.55 $60.68 million $0.82 14.21
Prospect Capital $607.01 million 4.47 $299.86 million $0.79 9.42

Prospect Capital has higher revenue and earnings than Gladstone Investment. Prospect 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.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Gladstone Investment and Prospect Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gladstone Investment 0 1 2 0 2.67
Prospect Capital 1 1 0 0 1.50

Gladstone Investment currently has a consensus price target of $10.50, suggesting a potential downside of 9.87%. Prospect Capital has a consensus price target of $5.50, suggesting a potential downside of 26.08%. Given Gladstone Investment’s stronger consensus rating and higher probable upside, equities analysts clearly believe Gladstone Investment is more favorable than Prospect Capital.

Profitability

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

Net Margins Return on Equity Return on Assets
Gladstone Investment 140.89% 7.64% 4.53%
Prospect Capital 45.58% 8.57% 4.86%

Insider and Institutional Ownership

15.8% of Gladstone Investment shares are owned by institutional investors. Comparatively, 12.0% of Prospect Capital shares are owned by institutional investors. 2.5% of Gladstone Investment shares are owned by company insiders. Comparatively, 7.1% of Prospect Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Summary

Prospect Capital beats Gladstone Investment on 9 of the 17 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.

Prospect Capital Company Profile

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, buyouts, recapitalizations, turnaround, growth capital, development, subordinated debt tranches of collateralized loan obligations, cash flow term loans, and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, unitranche debt, first-lien and second lien, private debt, mezzanine debt, and equity investments in private and microcap public businesses. It focuses on both primary origination and secondary loans/portfolios and invests in situations like debt financings for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, real estate financings/investments. The fund typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. It invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada. The fund seeks to invest between $10 million to $500 million per transaction in companies with EBITDA between $5 million and $250 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1000 million. It fund also co-invests for larger deals. The fund seeks control acquisitions by providing multiple levels of the capital structure. The fund focuses on sole, agented, club, or syndicated deals.

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