Gladstone Capital Corporation (NASDAQ: GLAD) and Stonegate Mortgage Corp (NYSE:SGM) are both finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their analyst recommendations, dividends, risk, valuation, earnings, profitabiliy and institutional ownership.

Volatility and Risk

Gladstone Capital Corporation has a beta of 1.21, indicating that its stock price is 21% more volatile than the S&P 500. Comparatively, Stonegate Mortgage Corp has a beta of 1.48, indicating that its stock price is 48% more volatile than the S&P 500.

Profitability

This table compares Gladstone Capital Corporation and Stonegate Mortgage Corp’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Gladstone Capital Corporation 82.86% 10.03% 6.29%
Stonegate Mortgage Corp -26.69% 3.92% 0.69%

Insider and Institutional Ownership

15.3% of Gladstone Capital Corporation shares are held by institutional investors. Comparatively, 44.3% of Stonegate Mortgage Corp shares are held by institutional investors. 6.5% of Gladstone Capital Corporation shares are held by insiders. Comparatively, 44.5% of Stonegate Mortgage Corp shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Dividends

Gladstone Capital Corporation pays an annual dividend of $0.84 per share and has a dividend yield of 8.5%. Stonegate Mortgage Corp does not pay a dividend. Gladstone Capital Corporation pays out 62.2% of its earnings in the form of a dividend.

Earnings & Valuation

This table compares Gladstone Capital Corporation and Stonegate Mortgage Corp’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Gladstone Capital Corporation N/A N/A N/A $1.35 7.30
Stonegate Mortgage Corp $189.69 million 1.09 -$38.52 million ($1.49) -5.36

Gladstone Capital Corporation has higher revenue, but lower earnings than Stonegate Mortgage Corp. Stonegate Mortgage Corp is trading at a lower price-to-earnings ratio than Gladstone Capital Corporation, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of current ratings for Gladstone Capital Corporation and Stonegate Mortgage Corp, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Gladstone Capital Corporation 1 1 1 0 2.00
Stonegate Mortgage Corp 0 1 2 0 2.67

Gladstone Capital Corporation presently has a consensus target price of $9.08, indicating a potential downside of 7.78%. Stonegate Mortgage Corp has a consensus target price of $6.00, indicating a potential downside of 24.91%. Given Gladstone Capital Corporation’s higher possible upside, analysts plainly believe Gladstone Capital Corporation is more favorable than Stonegate Mortgage Corp.

Summary

Stonegate Mortgage Corp beats Gladstone Capital Corporation on 7 of the 13 factors compared between the two stocks.

About Gladstone Capital Corporation

Gladstone Capital Corporation is a closed-end, non-diversified management investment company, operating as a business development company (BDC). The objectives of the Company are to achieve and grow current income by investing in debt securities of established businesses that it believes will provide stable earnings and cash flow to pay expenses, make principal and interest payments on its outstanding indebtedness and make distributions to stockholders that grow over time, and to provide its stockholders with long-term capital appreciation in the value of its assets by investing in equity securities of established businesses that it believes can grow over time to permit it to sell its equity investments for capital gains. The Company is focused on investing in lower middle-market companies in the United States. It has investments in south, Midwest, west and northeast of the United States. Its portfolio allocation includes debt investments and equity investments.

About Stonegate Mortgage Corp

Stonegate Mortgage Corporation is a non-bank mortgage company. The Company is focused on originating, financing and servicing the United States residential mortgage loans. The Company’s segments include Originations, Servicing, Financing and Other. The Originations segment primarily originates and sells residential mortgage loans, which conform to the underwriting guidelines of the government sponsored enterprises and government agencies, and non-agency whole loan investors. The Servicing segment includes loan administration, collection and default activities, including the collection and remittance of loan payments, responding to customer inquiries, collection of principal and interest payments, holding custodial funds for the payment of property taxes and insurance premiums, counseling delinquent mortgagors and modifying loans. The Financing segment includes warehouse-lending activities to correspondent customers by the Company’s subsidiary, NattyMac, LLC.

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