Hercules Capital (NYSE: HTGC) and American Capital Senior Floating (NASDAQ:ACSF) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their institutional ownership, valuation, earnings, risk, dividends, analyst recommendations and profitability.

Valuation and Earnings

This table compares Hercules Capital and American Capital Senior Floating’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Hercules Capital $187.39 million 5.64 $140.30 million $0.92 13.87
American Capital Senior Floating N/A N/A N/A $3.11 3.73

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

Volatility & Risk

Hercules Capital has a beta of 0.85, meaning that its stock price is 15% less volatile than the S&P 500. Comparatively, American Capital Senior Floating has a beta of 1.32, meaning that its stock price is 32% more volatile than the S&P 500.

Institutional & Insider Ownership

42.6% of Hercules Capital shares are held by institutional investors. Comparatively, 31.0% of American Capital Senior Floating shares are held by institutional investors. 3.9% of Hercules Capital shares are held by company insiders. Comparatively, 0.2% of American Capital Senior Floating shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Profitability

This table compares Hercules Capital and American Capital Senior Floating’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hercules Capital 38.69% 12.93% 6.76%
American Capital Senior Floating 119.98% 6.97% 3.69%

Analyst Ratings

This is a summary of recent recommendations for Hercules Capital and American Capital Senior Floating, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hercules Capital 1 1 5 0 2.57
American Capital Senior Floating 0 0 0 0 N/A

Hercules Capital currently has a consensus target price of $14.50, suggesting a potential upside of 13.64%. Given Hercules Capital’s higher probable upside, equities research analysts clearly believe Hercules Capital is more favorable than American Capital Senior Floating.

Dividends

Hercules Capital pays an annual dividend of $1.24 per share and has a dividend yield of 9.7%. American Capital Senior Floating pays an annual dividend of $1.16 per share and has a dividend yield of 10.0%. Hercules Capital pays out 134.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. American Capital Senior Floating pays out 37.3% of its earnings in the form of a dividend. American Capital Senior Floating is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Hercules Capital beats American Capital Senior Floating on 7 of the 13 factors compared between the two stocks.

Hercules Capital Company Profile

Hercules Capital, Inc. is a specialty finance company. The Company is an internally managed, non-diversified, closed-end investment company. The Company focuses on providing senior secured venture growth loans to venture capital-backed companies in a range of technology, life sciences, and sustainable and renewable technology industries. The Company’s investment objective is to maximize its portfolio total return by generating current income from its debt investments and capital appreciation from its warrant and equity-related investments. The Company’s primary business objectives are to increase its net income, net operating income and net asset value (NAV) by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. The Company focuses its investments in companies active in the technology industry sub-sectors.

American Capital Senior Floating Company Profile

American Capital Senior Floating, Ltd. is a non-diversified closed-end investment management company. The Company’s investment objective is to provide attractive, risk-adjusted returns over the long term primarily through current income while seeking to preserve its capital. It manages a leveraged portfolio composed primarily of diversified investments in first lien and second lien floating rate loans principally to the United States-based companies (collectively, Senior Floating Rate Loans or SFRLs), which are referred to as leveraged loans. It invests in equity tranches of collateralized loan obligations (CLOs), which are securitized vehicles collateralized primarily by SFRLs, and it may invest in debt tranches of CLOs. In addition, it may selectively invest in loans issued by middle market companies, mezzanine and unitranche loans and high yield bonds. It has over 80% of its assets in Senior Floating Rate Loans. The Company is managed by American Capital ACSF Management, LLC.

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