PennantPark Investment (NASDAQ: CSWC) and Capital Southwest (NASDAQ:CSWC) are both small-cap finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their risk, institutional ownership, dividends, profitability, analyst recommendations, earnings and valuation.
Institutional & Insider Ownership
44.5% of PennantPark Investment shares are held by institutional investors. Comparatively, 55.7% of Capital Southwest shares are held by institutional investors. 2.0% of PennantPark Investment shares are held by company insiders. Comparatively, 6.7% of Capital Southwest shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.
PennantPark Investment pays an annual dividend of $0.72 per share and has a dividend yield of 9.3%. Capital Southwest pays an annual dividend of $1.16 per share and has a dividend yield of 6.1%. PennantPark Investment 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. Capital Southwest pays out 114.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capital Southwest has raised its dividend for 2 consecutive years. PennantPark Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.
Earnings & Valuation
This table compares PennantPark Investment and Capital Southwest’s revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|PennantPark Investment||$124.53 million||4.33||$61.71 million||$0.79||9.76|
|Capital Southwest||$35.13 million||8.76||$39.30 million||$1.01||18.71|
PennantPark Investment has higher revenue and earnings than Capital Southwest. PennantPark Investment is trading at a lower price-to-earnings ratio than Capital Southwest, indicating that it is currently the more affordable of the two stocks.
This is a breakdown of current ratings for PennantPark Investment and Capital Southwest, as provided by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
PennantPark Investment presently has a consensus target price of $8.00, indicating a potential upside of 3.76%. Capital Southwest has a consensus target price of $20.25, indicating a potential upside of 7.14%. Given Capital Southwest’s stronger consensus rating and higher possible upside, analysts plainly believe Capital Southwest is more favorable than PennantPark Investment.
This table compares PennantPark Investment and Capital Southwest’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
Volatility & Risk
PennantPark Investment has a beta of 1.2, suggesting that its stock price is 20% more volatile than the S&P 500. Comparatively, Capital Southwest has a beta of 0.21, suggesting that its stock price is 79% less volatile than the S&P 500.
Capital Southwest beats PennantPark Investment on 10 of the 17 factors compared between the two stocks.
PennantPark Investment Company Profile
PennantPark Investment Corporation is a closed-end, non-diversified investment company. The Company is a business development company. Its objectives are to generate both current income and capital appreciation while seeking to preserve capital through debt and equity investments primarily made to the United States middle-market companies in the form of senior secured debt, mezzanine debt and equity investments. The Company’s debt investments may generally range in maturity from 3 to 10 years and, are made to the United States and to a limited extent, non-United States corporations, partnerships and other business entities, which operate in various industries and geographical regions. In addition, it may invest up to approximately 30% of its portfolio in non-qualifying assets. It invests in sectors, such as aerospace and defense; energy/utilities; auto sector; environmental services, and beverage, among others. PennantPark Investment Advisers, LLC is the Company’s investment advisor.
Capital Southwest Company Profile
Capital Southwest Corporation is a business development company specializing in credit and private equity and venture capital investments in middle market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, recapitalizations and growth capital investments. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. In lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts, and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. It prefers to invest in Industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, tech-enabled services and SaaS models. The firm seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation. Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products. The firm seeks to invest in the United States. The firm seeks to make investments ranging from $5 to $25 million in securities. It seeks to make equity investments up to $5 million and debt investments between $5 million and $20 million and co-invest in transaction size upto $40 million. It prefers to invest in companies with revenues approaching above $10 million, profitable operations, historical growth rate of at least 15 percent per year, EBITDA between $3 million and $50 million. In addition to making direct investments, the firm allocates capital to syndicated first and second lien term loans in the upper middle market. Criteria for Upper Middle Market Syndicated 1st Lien is EBITDA Size more than $30 million, Closing Leverage greater than 4 times, investment hold size between $5 million and $7 million, investment yield greater than 6.5%. Criteria for Upper Middle Market Syndicated 2nd Lien is EBITDA Size more than $50 million, Closing Leverage greater than 6 times, investment hold size between $5 million and $7 million, investment yield greater than 9%. It prefers to take a majority and minority stake. The firm has the flexibility to hold investments for very long period in its portfolio companies. It may also invest through warrants. The firm prefers to take Board participation in its portfolio companies. Capital Southwest Corporation was founded on April 19, 1961 and is based in Dallas, Texas.
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