Comparing OFS Capital Corporation (OFS) and Ares Capital Corporation (NASDAQ:ARCC)
Ares Capital Corporation (NASDAQ: ARCC) and OFS Capital Corporation (NASDAQ:OFS) are both finance companies, but which is the better stock? We will compare the two businesses based on the strength of their earnings, dividends, risk, profitabiliy, institutional ownership, valuation and analyst recommendations.
This is a breakdown of recent ratings and target prices for Ares Capital Corporation and OFS Capital Corporation, as provided by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Ares Capital Corporation||0||2||7||0||2.78|
|OFS Capital Corporation||1||0||4||0||2.60|
Ares Capital Corporation presently has a consensus target price of $17.81, suggesting a potential upside of 9.08%. OFS Capital Corporation has a consensus target price of $14.75, suggesting a potential upside of 4.46%. Given Ares Capital Corporation’s stronger consensus rating and higher probable upside, equities analysts clearly believe Ares Capital Corporation is more favorable than OFS Capital Corporation.
Ares Capital Corporation pays an annual dividend of $1.52 per share and has a dividend yield of 9.3%. OFS Capital Corporation pays an annual dividend of $1.36 per share and has a dividend yield of 9.6%. Ares Capital Corporation pays out 110.9% 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 Corporation pays out 80.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital Corporation is clearly the better dividend stock, given its higher yield and lower payout ratio.
Institutional and Insider Ownership
48.5% of Ares Capital Corporation shares are held by institutional investors. Comparatively, 26.2% of OFS Capital Corporation shares are held by institutional investors. 0.5% of Ares Capital Corporation shares are held by company insiders. Comparatively, 0.0% of OFS Capital Corporation shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.
Volatility & Risk
Ares Capital Corporation has a beta of 0.62, meaning that its share price is 38% less volatile than the S&P 500. Comparatively, OFS Capital Corporation has a beta of 0.46, meaning that its share price is 54% less volatile than the S&P 500.
This table compares Ares Capital Corporation and OFS Capital Corporation’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Ares Capital Corporation||44.29%||9.32%||5.33%|
|OFS Capital Corporation||52.47%||9.63%||4.60%|
Earnings & Valuation
This table compares Ares Capital Corporation and OFS Capital Corporation’s gross revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Ares Capital Corporation||N/A||N/A||N/A||$1.37||11.92|
|OFS Capital Corporation||N/A||N/A||N/A||$1.70||8.31|
OFS Capital Corporation is trading at a lower price-to-earnings ratio than Ares Capital Corporation, indicating that it is currently the more affordable of the two stocks.
Ares Capital Corporation beats OFS Capital Corporation on 8 of the 13 factors compared between the two stocks.
About Ares Capital Corporation
Ares Capital Corporation is a specialty finance company. The Company operates as a closed-end, non-diversified management investment company. The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. It invests primarily in the United States middle-market companies. It may from time to time invest in larger or smaller (in particular, for investments in early-stage and/or venture capital-backed) companies. It invests primarily in first lien senior secured loans (including unitranche loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans, and mezzanine debt, which in some cases includes an equity component. It invests in various industries, such as automotive services, business services, consumer products, and containers and packaging. Ares Capital Management LLC serves as its investment advisor.
About OFS Capital Corporation
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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