New Mountain Finance (NASDAQ:NMFC – Get Free Report) and Hennessy Advisors (NASDAQ:HNNA – Get Free Report) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their analyst recommendations, institutional ownership, valuation, earnings, risk, dividends and profitability.
Dividends
New Mountain Finance pays an annual dividend of $1.00 per share and has a dividend yield of 14.5%. Hennessy Advisors pays an annual dividend of $0.60 per share and has a dividend yield of 5.9%. New Mountain Finance pays out -185.2% of its earnings in the form of a dividend. Hennessy Advisors pays out 57.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. New Mountain Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.
Profitability
This table compares New Mountain Finance and Hennessy Advisors’ net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| New Mountain Finance | -21.29% | 10.71% | 4.55% |
| Hennessy Advisors | 24.77% | 8.31% | 5.48% |
Institutional & Insider Ownership
32.1% of New Mountain Finance shares are owned by institutional investors. Comparatively, 10.3% of Hennessy Advisors shares are owned by institutional investors. 14.9% of New Mountain Finance shares are owned by insiders. Comparatively, 36.0% of Hennessy Advisors shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.
Volatility and Risk
New Mountain Finance has a beta of 0.58, indicating that its share price is 42% less volatile than the S&P 500. Comparatively, Hennessy Advisors has a beta of 0.48, indicating that its share price is 52% less volatile than the S&P 500.
Valuation & Earnings
This table compares New Mountain Finance and Hennessy Advisors”s top-line revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| New Mountain Finance | $327.08 million | 2.00 | $16.49 million | ($0.54) | -12.80 |
| Hennessy Advisors | $35.54 million | 2.27 | $9.96 million | $1.04 | 9.80 |
New Mountain Finance has higher revenue and earnings than Hennessy Advisors. New Mountain Finance is trading at a lower price-to-earnings ratio than Hennessy Advisors, indicating that it is currently the more affordable of the two stocks.
Analyst Ratings
This is a breakdown of recent ratings and target prices for New Mountain Finance and Hennessy Advisors, as provided by MarketBeat.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| New Mountain Finance | 2 | 4 | 0 | 0 | 1.67 |
| Hennessy Advisors | 0 | 1 | 0 | 0 | 2.00 |
New Mountain Finance presently has a consensus price target of $7.50, suggesting a potential upside of 8.54%. Given New Mountain Finance’s higher probable upside, analysts plainly believe New Mountain Finance is more favorable than Hennessy Advisors.
Summary
New Mountain Finance beats Hennessy Advisors on 8 of the 15 factors compared between the two stocks.
About New Mountain Finance
New Mountain Finance Corporation (Nasdaq: NMFC), a business development company is a private equity / buyouts and loan fund specializes in directly investing and lending to middle market companies in defensive growth industries. The fund prefers investing in buyout and middle market companies. It also makes investments in debt securities at all levels of the capital structure including first and second lien debt, unsecured notes, and mezzanine securities. In some cases, its investments may also include equity interests. It targets energy, engineering and consulting services, specialty chemicals and materials, trading companies and distributors, commercial printing, diversified support services, education services, environmental and facilities services, office services and supplies, media, distributors, health care services, health care facilities, application software, business services, systems software, federal services, distribution and logistics, interactive home entertainment, telecommunication services, hydroelectric power generation, electric power generation by fossil fuels, electric power generation by nuclear fuels, health care technology, and security and alarm services. The fund seeks to invest in United States of America. It seeks to invest between $10 million and $125 million per transaction. The firm invests through both primary originations and open-market secondary purchases. It invests in companies with EBITDA between $10 million and $200 million. The fund seeks a majority stake in its portfolio companies.
About Hennessy Advisors
Hennessy Advisors, Inc. is an employee owned investment manager. It provides its services to Hennessy Funds and investment companies. The firm launches and manages equity, fixed income, and balanced mutual funds. It invests in the public equity and fixed income markets across the globe. The firm primarily invests in growth stocks of companies. It conducts in-house research to make its investments. Hennessy Advisors, Inc. was founded in 1989 and is based in Novato, California with additional offices in Boston, Massachusetts and Chapel Hill, North Carolina.
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