Capital Southwest Corporation (NASDAQ: CSWC) and Saratoga Investment Corp (NYSE:SAR) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their valuation, earnings, dividends, analyst recommendations, risk, profitabiliy and institutional ownership.
Volatility and Risk
Capital Southwest Corporation has a beta of -0.5, meaning that its share price is 150% less volatile than the S&P 500. Comparatively, Saratoga Investment Corp has a beta of 0.5, meaning that its share price is 50% less volatile than the S&P 500.
Institutional and Insider Ownership
62.8% of Capital Southwest Corporation shares are owned by institutional investors. Comparatively, 16.4% of Saratoga Investment Corp shares are owned by institutional investors. 5.9% of Capital Southwest Corporation shares are owned by insiders. Comparatively, 31.8% of Saratoga Investment Corp shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.
Valuation and Earnings
This table compares Capital Southwest Corporation and Saratoga Investment Corp’s revenue, earnings per share (EPS) and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Capital Southwest Corporation||$23.47 million||10.96||$11.81 million||$1.47||10.93|
|Saratoga Investment Corp||$33.96 million||3.67||$9.43 million||$1.58||13.21|
Capital Southwest Corporation has higher revenue, but lower earnings than Saratoga Investment Corp. Capital Southwest Corporation is trading at a lower price-to-earnings ratio than Saratoga Investment Corp, indicating that it is currently the more affordable of the two stocks.
This is a breakdown of current ratings and target prices for Capital Southwest Corporation and Saratoga Investment Corp, as reported by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Capital Southwest Corporation||0||1||2||0||2.67|
|Saratoga Investment Corp||0||1||0||0||2.00|
Capital Southwest Corporation presently has a consensus price target of $20.67, suggesting a potential upside of 28.60%. Saratoga Investment Corp has a consensus price target of $18.00, suggesting a potential downside of 13.76%. Given Capital Southwest Corporation’s stronger consensus rating and higher possible upside, analysts plainly believe Capital Southwest Corporation is more favorable than Saratoga Investment Corp.
This table compares Capital Southwest Corporation and Saratoga Investment Corp’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Capital Southwest Corporation||100.01%||3.44%||3.15%|
|Saratoga Investment Corp||26.84%||8.03%||3.19%|
Capital Southwest Corporation pays an annual dividend of $0.84 per share and has a dividend yield of 5.2%. Saratoga Investment Corp pays an annual dividend of $1.88 per share and has a dividend yield of 9.0%. Capital Southwest Corporation pays out 57.1% of its earnings in the form of a dividend. Saratoga Investment Corp pays out 119.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.
Capital Southwest Corporation beats Saratoga Investment Corp on 9 of the 16 factors compared between the two stocks.
Capital Southwest Corporation Company Profile
Capital Southwest Corporation is an investment company that specializes in providing customized financing to middle market companies in a range of industry segments located primarily in the United States. The Company is a specialty lending company. Its principal investment objective is to produce risk-adjusted returns by generating current income from debt investments and capital appreciation from its equity and equity related investments. It focuses on partnering with business owners, management teams and financial sponsors to provide financing solutions to fund growth, changes of control, or other corporate events. In allocating future investments, it focuses on investing in senior and subordinated debt securities secured by security interests in portfolio company assets, coupled with equity interests. It targets senior and subordinated investments in the lower middle market and private loan transactions, as well as first and second lien syndicated loans in middle market companies.
Saratoga Investment Corp Company Profile
Saratoga Investment Corp. is a specialty finance company. The Company is an externally managed, closed-end, non-diversified management investment company. The Company invests primarily in leveraged loans and mezzanine debt issued by private middle-market companies in the United States. Its investment objective is to generate current income and, to a lesser extent, capital appreciation from its investments. It purchases mezzanine debt and makes equity investments in middle market companies. It may invest in other investments, such as investments in distressed debt, including securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles, such as collateralized loan obligation funds. Its leveraged loan portfolio consists primarily of first lien and second lien term loans. The Company’s investment activities are externally managed and advised by Saratoga Investment Advisors, LLC.
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