Critical Contrast: ONEX (OTCMKTS:ONEXF) vs. OFS Capital (NASDAQ:OFS)

ONEX (OTCMKTS:ONEXF) and OFS Capital (NASDAQ:OFS) are both finance companies, but which is the better investment? We will compare the two businesses based on the strength of their analyst recommendations, earnings, risk, dividends, profitability, institutional ownership and valuation.

Insider & Institutional Ownership

0.7% of ONEX shares are held by institutional investors. Comparatively, 10.8% of OFS Capital shares are held by institutional investors. 0.5% of OFS Capital 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.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
ONEX	63.83%	5.24%	4.21%
OFS Capital	-62.24%	7.46%	2.67%

Risk & Volatility

ONEX has a beta of 1.2, suggesting that its stock price is 20% more volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.84, suggesting that its stock price is 16% less volatile than the S&P 500.

Earnings & Valuation

This table compares ONEX and OFS Capital”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
ONEX	$899.00 million	6.05	$617.00 million	$6.68	10.67
OFS Capital	$40.69 million	1.20	-$33.09 million	($1.65)	-2.20

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

Dividends

ONEX pays an annual dividend of $0.28 per share and has a dividend yield of 0.4%. OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 18.7%. ONEX pays out 4.2% of its earnings in the form of a dividend. OFS Capital pays out -41.2% 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. OFS Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a summary of recent ratings and target prices for ONEX and OFS Capital, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
ONEX	0	2	2	0	2.50
OFS Capital	1	1	0	0	1.50

OFS Capital has a consensus target price of $7.00, indicating a potential upside of 92.84%. Given OFS Capital’s higher possible upside, analysts clearly believe OFS Capital is more favorable than ONEX.

Summary

ONEX beats OFS Capital on 10 of the 17 factors compared between the two stocks.

About ONEX

Onex Corporation is a private equity firm specializing in acquisitions and platform acquisitions. The firm makes investments in buyouts, large- middle market, large-cap, mid-cap, and small-cap market and distressed companies. It also invests in recapitalization, growth capital, corporate carve-outs of subsidiaries and mission-critical supply divisions from multinational corporations, operational restructurings of undervalued businesses, and builds up. The firm seeks to invest in technology, electronics manufacturing services, industrial, aerospace, healthcare, retail, restaurants, industrials products, customer care services, metal services, building products, entertainment, gaming, cabinetry products, commercial vehicles, commercial and investment banking, financial services, commercial and multi-unit residential real estate. It invests in global businesses headquartered in North America, including United States and Canada, or Europe. The firm seeks to invest between $125 million and $1 billion in companies that have minimum revenues of $300 million. It does not consider size if the company is in an industry in which the firm already has presence. The firm seeks to make direct as well as co-investments through managed private equity, real estate and credit funds. It seeks to acquire a control position in its portfolio companies. Onex Corporation was founded in 1984 and is based in Toronto, Canada with additional offices in New York, New York; Englewood Cliffs, New Jersey; Boston, Massachusetts and London, United Kingdom.

About OFS Capital

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.