SLR Investment (NASDAQ:SLRC) and Ares Capital (NASDAQ:ARCC) Financial Comparison

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

Volatility and Risk

Ares Capital has a beta of 0.56, suggesting that its stock price is 44% less volatile than the S&P 500. Comparatively, SLR Investment has a beta of 0.64, suggesting that its stock price is 36% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations for Ares Capital and SLR Investment, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	2	9	0	2.82
SLR Investment	3	2	2	0	1.86

Ares Capital currently has a consensus price target of $20.75, suggesting a potential upside of 11.08%. SLR Investment has a consensus price target of $14.40, suggesting a potential upside of 11.46%. Given SLR Investment’s higher possible upside, analysts clearly believe SLR Investment is more favorable than Ares Capital.

Institutional and Insider Ownership

27.4% of Ares Capital shares are held by institutional investors. Comparatively, 35.3% of SLR Investment shares are held by institutional investors. 0.5% of Ares Capital shares are held by insiders. Comparatively, 8.8% of SLR Investment shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.3%. SLR Investment pays an annual dividend of $1.64 per share and has a dividend yield of 12.7%. Ares Capital pays out 117.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. SLR Investment pays out 100.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. SLR Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Earnings & Valuation

This table compares Ares Capital and SLR Investment”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ares Capital	$3.05 billion	4.39	$1.30 billion	$1.63	11.46
SLR Investment	$218.54 million	3.23	$92.54 million	$1.64	7.88

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ares Capital	37.30%	9.85%	4.59%
SLR Investment	41.81%	8.33%	3.25%

About Ares Capital

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

About SLR Investment

SLR Investment Corp. is a business development company specializing in secured debt (first lien unitranche and second lien), subordinated (unsecured) debt, minority equity, leveraged buyouts, acquisitions, recapitalizations, general refinancing, growth capital and strategic income-oriented control equity investments in leveraged middle market companies. The fund invests in aerospace and defense; air freight & logistics; asset management; automotive; banking; beverage, food and tobacco; building products; buildings and real estate; broadcasting and entertainment; cargo transport; commercial services and supplies; communications equipment; chemicals, plastics and rubber; containers, packaging and glass; construction & engineering; diversified/conglomerate manufacturing; consumer Finance; distributors; diversified/conglomerate services; diversified financial services; diversified real estate activities; food products; Footwear; Education Services; diversified telecommunications services; electronics; farming and agriculture; finance; grocery; health care equipment and supplies; health care facilities; education and childcare; home and office furnishing, durable consumer products; hotels, motels, inns and gaming; insurance; restaurants, leisure, amusement, and entertainment; leisure equipment tolls and services, media, multiline retail, multi sector holdings; paper and forest products; personal products; professional services, research and consulting services, software; specialty retail; textiles apparel and luxury goods, thrifts and mortgage finance, trading companies and distributors, utilities, and wireless telecommunication services; industrial conglomerates; internet software and services, IT services, machinery; mining, steel, iron, and non-precious metals; oil and gas; personal, food and miscellaneous services; printing and publishing; retail stores; telecommunications; textiles and leather; and utilities. It also invests in life sciences with focus on specialty pharmaceuticals, medical devices, biotech, health Care Providers and services; health Care technology, enabling technologies and tools. The fund primarily invests in United States. The fund’s investments generally range between $5 million and $100 million. The fund invests in companies with revenues between $50 million and $1 billion and EBITDA between $15 million and $100 million. It invests in the form of senior secured loans, mezzanine loans, and equity securities. It may also seek investments in thinly traded public companies and also make secondary investments. The fund makes non-control equity investments. It primarily exits within three years of the initial capital commitment.