Fifth Street Senior Floating Rate Corp. (NASDAQ: FSFR) and KCAP Financial (NASDAQ:KCAP) are both small-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their valuation, profitabiliy, dividends, analyst recommendations, institutional ownership, earnings and risk.

Valuation and Earnings

This table compares Fifth Street Senior Floating Rate Corp. and KCAP Financial’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Fifth Street Senior Floating Rate Corp. N/A N/A N/A $0.50 16.82
KCAP Financial $34.46 million 3.60 $5.52 million $0.15 22.47

KCAP Financial has higher revenue and earnings than Fifth Street Senior Floating Rate Corp.. Fifth Street Senior Floating Rate Corp. is trading at a lower price-to-earnings ratio than KCAP Financial, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Fifth Street Senior Floating Rate Corp. and KCAP Financial, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Fifth Street Senior Floating Rate Corp. 0 2 0 0 2.00
KCAP Financial 0 1 1 0 2.50

Fifth Street Senior Floating Rate Corp. currently has a consensus target price of $9.25, indicating a potential upside of 9.99%. KCAP Financial has a consensus target price of $9.75, indicating a potential upside of 189.32%. Given KCAP Financial’s stronger consensus rating and higher probable upside, analysts clearly believe KCAP Financial is more favorable than Fifth Street Senior Floating Rate Corp..

Insider & Institutional Ownership

23.6% of Fifth Street Senior Floating Rate Corp. shares are owned by institutional investors. Comparatively, 19.7% of KCAP Financial shares are owned by institutional investors. 0.4% of Fifth Street Senior Floating Rate Corp. shares are owned by company insiders. Comparatively, 8.0% of KCAP Financial shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Fifth Street Senior Floating Rate Corp. and KCAP Financial’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Fifth Street Senior Floating Rate Corp. 30.81% 7.29% 3.80%
KCAP Financial 17.53% 7.44% 3.84%

Dividends

Fifth Street Senior Floating Rate Corp. pays an annual dividend of $2.28 per share and has a dividend yield of 27.1%. KCAP Financial pays an annual dividend of $0.48 per share and has a dividend yield of 14.2%. Fifth Street Senior Floating Rate Corp. pays out 456.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. KCAP Financial pays out 320.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Volatility & Risk

Fifth Street Senior Floating Rate Corp. has a beta of 0.34, indicating that its share price is 66% less volatile than the S&P 500. Comparatively, KCAP Financial has a beta of 1.71, indicating that its share price is 71% more volatile than the S&P 500.

Summary

KCAP Financial beats Fifth Street Senior Floating Rate Corp. on 9 of the 14 factors compared between the two stocks.

Fifth Street Senior Floating Rate Corp. Company Profile

Fifth Street Senior Floating Rate Corp. is a closed-end, non-diversified management investment company. The Company operates as a specialty finance company. The Company’s investment objective is to maximize its portfolio’s total return by generating current income from its debt investments while seeking to preserve its capital. The Company invests in portfolio companies primarily in the form of senior loans. The Company invests in senior secured loans, including first lien, unitranche and second lien debt instruments. The Company may also invest in unsecured loans, including subordinated loans, issued by private middle market companies, and senior and subordinated loans issued by public companies and equity investments. The senior loans that the Company targets have final maturities of 4 to 7 years. The Company seeks to invest in senior loans made primarily to private middle market companies. Fifth Street Management LLC is the investment advisor of the Company.

KCAP Financial Company Profile

KCAP Financial, Inc. is an internally managed, non-diversified closed-end investment company. The Company has approximately three principal areas of investments. First, the Company originates, structures and invests in senior secured term loans and mezzanine debt primarily in privately-held middle market companies (the debt securities portfolio). In addition, the Company may invest in the equity securities of privately held middle market companies. Second, the Company invests in asset management companies (the Asset Manager Affiliates) that manage collateralized loan obligation funds (CLO Funds). Third, the Company invests in debt and subordinated securities issued by CLOs (CLO fund securities). These CLO fund securities are primarily managed by its Asset Manager Affiliates, but from time-to-time the Company makes investments in CLO Fund Securities managed by other asset managers. The CLO funds typically invest in syndicated loans, high-yield bonds and other credit instruments.

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