Critical Contrast: Ares Capital (NASDAQ:ARCC) versus Virtus Investment Partners (NASDAQ:VRTS)

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ares Capital	30.91%	9.80%	4.50%
Virtus Investment Partners	13.42%	21.56%	5.27%

Valuation & Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ares Capital	$3.05 billion	4.37	$1.30 billion	$1.35	13.75
Virtus Investment Partners	$819.58 million	1.06	$121.75 million	$17.55	7.49

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

Risk & Volatility

Ares Capital has a beta of 0.61, suggesting that its share price is 39% less volatile than the S&P 500. Comparatively, Virtus Investment Partners has a beta of 1.41, suggesting that its share price is 41% more volatile than the S&P 500.

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.3%. Virtus Investment Partners pays an annual dividend of $9.80 per share and has a dividend yield of 7.5%. Ares Capital pays out 142.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Virtus Investment Partners pays out 55.8% of its earnings in the form of a dividend.

Analyst Recommendations

This is a breakdown of current ratings and price targets for Ares Capital and Virtus Investment Partners, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	3	8	0	2.73
Virtus Investment Partners	2	2	1	0	1.80

Ares Capital presently has a consensus price target of $20.39, indicating a potential upside of 9.85%. Virtus Investment Partners has a consensus price target of $143.00, indicating a potential upside of 8.72%. Given Ares Capital’s stronger consensus rating and higher possible upside, research analysts plainly believe Ares Capital is more favorable than Virtus Investment Partners.

Institutional and Insider Ownership

27.4% of Ares Capital shares are held by institutional investors. Comparatively, 80.5% of Virtus Investment Partners shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 6.4% of Virtus Investment Partners 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.

Summary

Ares Capital beats Virtus Investment Partners on 9 of the 16 factors compared between the two stocks.

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 Virtus Investment Partners

Virtus Investment Partners, Inc. is a publicly owned investment manager. The firm primarily provides its services to individual and institutional clients. It launches separate client focused equity and fixed income portfolios. The firm launches equity, fixed income, and balanced mutual funds for its clients. It invests in the public equity, fixed income, and real estate markets. The firm also invests in exchange traded funds. It employs a multi manager approach for its products. The firm employs quantitative analysis to make its investments. It benchmarks the performance of its portfolios against the S&P 500 Index. The firm conducts in-house research to make its investments. Virtus Investment Partners, Inc. was founded in 1988 and is based in Hartford, Connecticut.