Analyzing Gladstone Investment (GAIN) and OFS Capital (OFS)

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

Institutional and Insider Ownership

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15.3% of Gladstone Investment shares are held by institutional investors. Comparatively, 27.5% of OFS Capital shares are held by institutional investors. 2.4% of Gladstone Investment shares are held by insiders. Comparatively, 0.0% 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 Gladstone Investment and OFS Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Gladstone Investment 104.00% 7.64% 4.61%
OFS Capital 19.01% 8.71% 4.55%

Dividends

Gladstone Investment pays an annual dividend of $0.80 per share and has a dividend yield of 6.7%. OFS Capital pays an annual dividend of $1.36 per share and has a dividend yield of 11.1%. Gladstone Investment pays out 97.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital pays out 106.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Volatility & Risk

Gladstone Investment has a beta of 0.53, meaning that its share price is 47% less volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.48, meaning that its share price is 52% less volatile than the S&P 500.

Analyst Recommendations

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

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gladstone Investment 0 1 2 0 2.67
OFS Capital 0 1 1 0 2.50

Gladstone Investment currently has a consensus target price of $10.50, indicating a potential downside of 11.47%. OFS Capital has a consensus target price of $14.00, indicating a potential upside of 14.75%. Given OFS Capital’s higher probable upside, analysts plainly believe OFS Capital is more favorable than Gladstone Investment.

Earnings and Valuation

This table compares Gladstone Investment and OFS Capital’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Gladstone Investment $58.35 million 6.67 $60.68 million $0.82 14.46
OFS Capital $33.43 million 4.87 $7.90 million $1.28 9.53

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

Summary

Gladstone Investment beats OFS Capital on 11 of the 16 factors compared between the two stocks.

About Gladstone Investment

Gladstone Investment Corporation is a business development company specializing in buyouts; recapitalizations; refinancing existing debt; senior debt securities such as senior loans, senior term loans, lines of credit, and senior notes; senior subordinated debt securities such as senior subordinated loans and senior subordinated notes; junior subordinated debt securities such as subordinated notes and mezzanine loans; limited liability company interests, and warrants or options. The fund does not invest in start-ups. It seeks to invest in small and mid-sized companies based in the United States. The fund prefers to make debt investments between $5 million and $30 million and equity investments between $10 million and $40 million in companies. The fund seeks to invest in companies with sales between $20 million and $100 million. It seeks minority equity ownership and prefers to hold a board seat in its portfolio companies. It also prefers to take majority stake in its portfolio companies. The fund typically holds its investments for seven years and exits via sale or recapitalization, initial public offering, or sale to third party.

About OFS Capital

OFS Capital Corporation (OFS Capital) is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to provide its shareholders with both current income and capital appreciation primarily through debt investments and equity investments. It focuses primarily on middle-market companies in the United States, including senior secured loans, including first-lien, second-lien and unitranche loans, as well as subordinated loans, and warrants and other minority equity securities. The Company may make investments directly or through OFS SBIC I, LP (SBIC I LP), its investment company subsidiary. It focuses on investments in loans, in which OFS Advisor’s investment professionals have expertise, including investments in first-lien, unitranche, second-lien, and mezzanine loans and, to a lesser extent, on warrants and other equity securities. The Company’s investment activities are managed by OFS Capital Management, LLC (OFS Advisor).

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