Analyzing Saratoga Investment (NYSE:SAR) and OFS Capital (NASDAQ:OFS)

Saratoga Investment (NYSE:SAR) and OFS Capital (NASDAQ:OFS) are both small-cap finance companies, but which is the better stock? We will contrast the two companies based on the strength of their institutional ownership, profitability, analyst recommendations, dividends, valuation, earnings and risk.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Saratoga Investment	-3.35%	8.66%	2.78%
OFS Capital	-91.39%	6.09%	2.20%

Analyst Ratings

This is a summary of current ratings and target prices for Saratoga Investment and OFS Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Saratoga Investment	1	4	0	0	1.80
OFS Capital	1	1	0	0	1.50

Saratoga Investment currently has a consensus target price of $19.67, suggesting a potential upside of 55.30%. Given Saratoga Investment’s stronger consensus rating and higher probable upside, analysts clearly believe Saratoga Investment is more favorable than OFS Capital.

Earnings & Valuation

This table compares Saratoga Investment and OFS Capital”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Saratoga Investment	$8.73 million	22.57	$36.60 million	($0.25)	-50.66
OFS Capital	$40.69 million	1.21	-$33.09 million	($2.11)	-1.74

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

Dividends

Saratoga Investment pays an annual dividend of $3.00 per share and has a dividend yield of 23.7%. OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 18.6%. Saratoga Investment pays out -1,200.0% of its earnings in the form of a dividend. OFS Capital pays out -32.2% 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. OFS Capital has increased its dividend for 3 consecutive years. Saratoga Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional & Insider Ownership

19.1% of Saratoga Investment shares are owned by institutional investors. Comparatively, 10.8% of OFS Capital shares are owned by institutional investors. 10.6% of Saratoga Investment shares are owned by company insiders. Comparatively, 0.5% of OFS Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Volatility & Risk

Saratoga Investment has a beta of 0.62, indicating that its share price is 38% less volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.85, indicating that its share price is 15% less volatile than the S&P 500.

Summary

Saratoga Investment beats OFS Capital on 12 of the 16 factors compared between the two stocks.

About Saratoga Investment

Saratoga Investment Corp. (NYSE: SAR) is a closed-end, non-diversified business development company that provides financing to lower middle-market companies in the United States. The company invests primarily in established businesses and seeks to support their growth, acquisitions, recapitalizations, and other strategic initiatives. Saratoga Investment’s investment portfolio generally includes senior and subordinated debt, unitranche loans, and equity investments. Through its wholly owned Saratoga Investment Advisors subsidiary, the company also manages a Small Business Investment Company (SBIC) subsidiary, allowing it to provide government-supported financing to qualifying small and mid-sized businesses.

About OFS Capital

OFS Capital Corporation (NASDAQ:OFS) is a business development company that provides financing to privately owned U.S. companies. The company primarily invests in lower middle-market businesses, which are generally companies that may have limited access to traditional bank financing or public capital markets. OFS Capital’s investment activities focus on providing secured loans, subordinated debt and, to a lesser extent, equity investments. Its financing may support acquisitions, recapitalizations, refinancing, growth initiatives and other corporate activities.