Saratoga Investment Corp (NYSE: SAR) and Compass Diversified Holdings (NYSE:CODI) are both small-cap finance companies, but which is the superior business? We will compare the two companies based on the strength of their risk, valuation, analyst recommendations, dividends, earnings, institutional ownership and profitabiliy.

Dividends

Saratoga Investment Corp pays an annual dividend of $1.88 per share and has a dividend yield of 8.8%. Compass Diversified Holdings pays an annual dividend of $1.44 per share and has a dividend yield of 8.2%. 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. Compass Diversified Holdings pays out -276.9% of its earnings in the form of a dividend.

Analyst Ratings

This is a breakdown of recent recommendations for Saratoga Investment Corp and Compass Diversified Holdings, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Saratoga Investment Corp 0 0 0 0 N/A
Compass Diversified Holdings 0 0 4 0 3.00

Compass Diversified Holdings has a consensus target price of $19.00, indicating a potential upside of 8.26%. Given Compass Diversified Holdings’ higher possible upside, analysts plainly believe Compass Diversified Holdings is more favorable than Saratoga Investment Corp.

Risk & Volatility

Saratoga Investment Corp has a beta of 0.5, suggesting that its share price is 50% less volatile than the S&P 500. Comparatively, Compass Diversified Holdings has a beta of 0.57, suggesting that its share price is 43% less volatile than the S&P 500.

Institutional & Insider Ownership

16.2% of Saratoga Investment Corp shares are held by institutional investors. Comparatively, 37.1% of Compass Diversified Holdings shares are held by institutional investors. 32.0% of Saratoga Investment Corp shares are held by insiders. Comparatively, 2.4% of Compass Diversified Holdings shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Saratoga Investment Corp and Compass Diversified Holdings’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Saratoga Investment Corp 26.84% 8.03% 3.19%
Compass Diversified Holdings 2.20% 6.42% 3.06%

Valuation and Earnings

This table compares Saratoga Investment Corp and Compass Diversified Holdings’ revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Saratoga Investment Corp $33.96 million 3.75 $9.43 million $1.58 13.50
Compass Diversified Holdings $1.08 billion 0.97 $175.69 million ($0.52) -33.75

Compass Diversified Holdings has higher revenue and earnings than Saratoga Investment Corp. Compass Diversified Holdings 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.

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.

Compass Diversified Holdings Company Profile

Compass Diversified Holdings (the Trust) and Compass Group Diversified Holdings, LLC, (the Company), acquires and manages small and middle-market businesses. The Company operates through segments include Acquisition Corp. (5.11 Tactical), The Ergo Baby Carrier, Inc. (Ergobaby), Liberty Safe and Security Products, Inc. (Liberty), Fresh Hemp Foods Ltd. (Manitoba Harvest), Compass AC Holdings, Inc. (ACI), AMT Acquisition Corporation (Arnold), Clean Earth Holdings, Inc. (Clean Earth), and Sterno Products, LLC (Sterno) segments. The Company categorizes the businesses into separate groups of businesses, such as branded consumer businesses and niche industrial businesses. The Company also owns a non-controlling interest in Fox Factory Holding Corp. (FOX). Compass Group Management LLC, (CGM or the Manager), manages the day to day operations of the Company and oversees the management and operations of its businesses pursuant to a management services agreement (MSA).

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