Capitala Finance (CPTA) & Gladstone Investment (GAIN) Critical Contrast

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

Insider and Institutional Ownership

17.0% of Capitala Finance shares are held by institutional investors. Comparatively, 16.9% of Gladstone Investment shares are held by institutional investors. 9.1% of Capitala Finance shares are held by insiders. Comparatively, 2.5% of Gladstone Investment shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Profitability

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

Net Margins Return on Equity Return on Assets
Capitala Finance -2.68% 7.81% 3.26%
Gladstone Investment 140.89% 7.64% 4.53%

Dividends

Capitala Finance pays an annual dividend of $1.00 per share and has a dividend yield of 11.5%. Gladstone Investment pays an annual dividend of $0.80 per share and has a dividend yield of 6.6%. Capitala Finance pays out 102.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. 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. Gladstone Investment has increased its dividend for 5 consecutive years.

Valuation and Earnings

This table compares Capitala Finance and Gladstone Investment’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Capitala Finance $51.09 million 2.72 -$6.98 million $0.98 8.88
Gladstone Investment $58.35 million 6.77 $60.68 million $0.82 14.68

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

Volatility & Risk

Capitala Finance has a beta of 0.97, indicating that its stock price is 3% less volatile than the S&P 500. Comparatively, Gladstone Investment has a beta of 0.54, indicating that its stock price is 46% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent recommendations for Capitala Finance and Gladstone Investment, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Capitala Finance 0 2 1 0 2.33
Gladstone Investment 0 1 2 0 2.67

Capitala Finance currently has a consensus target price of $11.50, indicating a potential upside of 32.18%. Gladstone Investment has a consensus target price of $10.50, indicating a potential downside of 12.79%. Given Capitala Finance’s higher possible upside, equities research analysts plainly believe Capitala Finance is more favorable than Gladstone Investment.

Summary

Gladstone Investment beats Capitala Finance on 10 of the 17 factors compared between the two stocks.

Capitala Finance Company Profile

Capitala Finance Corp. is a Business Development Company specializing in traditional mezzanine, senior subordinated and unitranche debt, first-lien and second-lien loans, equity investments in sponsored and non-sponsored lower and traditional middle market companies. The fund targets companies in the business services, commercial and professional services, manufacturing, consumer and retail, energy, and health-care industries. It typically considers investments in the United States. The fund invests $5 million and $50 million per transaction in companies with greater than $4.5 million of TTM EBITDA. It may also invest in senior secured positions in "stretch" senior secured loans. The fund makes minority equity co-investments, alongside management or financial sponsors.

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.

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