Contrasting TPG Specialty Lending (TSLX) and CM Finance (CMFN)

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TPG Specialty Lending (NASDAQ: CMFN) and CM Finance (NASDAQ:CMFN) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their earnings, dividends, risk, institutional ownership, valuation, profitability and analyst recommendations.

Dividends

TPG Specialty Lending pays an annual dividend of $1.56 per share and has a dividend yield of 7.9%. CM Finance pays an annual dividend of $1.00 per share and has a dividend yield of 10.9%. TPG Specialty Lending pays out 78.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. CM Finance pays out 87.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider and Institutional Ownership

61.6% of TPG Specialty Lending shares are owned by institutional investors. Comparatively, 50.3% of CM Finance shares are owned by institutional investors. 4.8% of TPG Specialty Lending shares are owned by insiders. Comparatively, 1.8% of CM Finance shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares TPG Specialty Lending and CM Finance’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
TPG Specialty Lending $210.90 million 6.07 $120.25 million $2.00 9.84
CM Finance $31.01 million 4.04 $23.57 million $1.15 7.96

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

Analyst Recommendations

This is a summary of current ratings for TPG Specialty Lending and CM Finance, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
TPG Specialty Lending 0 0 7 0 3.00
CM Finance 0 2 1 0 2.33

TPG Specialty Lending presently has a consensus target price of $21.00, suggesting a potential upside of 6.76%. Given TPG Specialty Lending’s stronger consensus rating and higher probable upside, research analysts plainly believe TPG Specialty Lending is more favorable than CM Finance.

Profitability

This table compares TPG Specialty Lending and CM Finance’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
TPG Specialty Lending 53.60% 12.40% 6.95%
CM Finance 54.18% 8.13% 4.52%

Risk and Volatility

TPG Specialty Lending has a beta of 0.66, indicating that its share price is 34% less volatile than the S&P 500. Comparatively, CM Finance has a beta of 1.18, indicating that its share price is 18% more volatile than the S&P 500.

Summary

TPG Specialty Lending beats CM Finance on 13 of the 16 factors compared between the two stocks.

About TPG Specialty Lending

TPG Specialty Lending, Inc. is a business development company. The fund provides senior secured loans (first-lien, second-lien, and unitranche), mezzanine debt, non-control structured equity, and common equity with a focus on co-investments for organic growth, acquisitions, market or product expansion, restructuring initiatives, recapitalizations, and refinancing. The fund invests in business services, software & technology, healthcare, energy, consumer & retail, manufacturing, industrials, royalty related businesses, education, and specialty finance. It seeks to finance middle market companies principally located in the United States. The fund invests in companies with enterprise value between $50 million and $1 billion or more and EBITDA between $10 million and $250 million. The transaction size is between $15 million and $350 million. The fund invests across the spectrum of the capital structure and can arrange syndicated transactions of up to $500 million and hold sizeable positions within its credits.

About CM Finance

CM Finance Inc. is a business development company specializing in loan, mezzanine, middle market, growth capital, and recapitalization investments. The fund typically invests in United States and Europe. Within United States, the fund seeks to invest in Midatlantic, Midwest, Northeast, Southeast, and West Coast regions. The fund primarily invests in cable and satellites; consumer services; healthcare equipment and services; industrials; information technology; telecommunication services; and utilities sectors. The fund seeks to invest in companies with EBITDA more than $15 million. The fund is based in New York, New York.

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