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

Dividends

PennantPark Floating Rate Capital pays an annual dividend of $1.14 per share and has a dividend yield of 7.8%. Hercules Capital pays an annual dividend of $1.24 per share and has a dividend yield of 9.7%. PennantPark Floating Rate Capital pays out 78.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. 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.

Profitability

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

Net Margins Return on Equity Return on Assets
PennantPark Floating Rate Capital 73.28% 7.26% 4.15%
Hercules Capital 38.69% 12.93% 6.76%

Analyst Ratings

This is a breakdown of recent recommendations and price targets for PennantPark Floating Rate Capital and Hercules Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
PennantPark Floating Rate Capital 0 1 4 0 2.80
Hercules Capital 1 1 5 0 2.57

PennantPark Floating Rate Capital presently has a consensus target price of $14.90, suggesting a potential upside of 2.34%. Hercules Capital has a consensus target price of $14.50, suggesting a potential upside of 13.81%. Given Hercules Capital’s higher probable upside, analysts plainly believe Hercules Capital is more favorable than PennantPark Floating Rate Capital.

Insider & Institutional Ownership

31.6% of PennantPark Floating Rate Capital shares are owned by institutional investors. Comparatively, 42.6% of Hercules Capital shares are owned by institutional investors. 1.2% of PennantPark Floating Rate Capital shares are owned by company insiders. Comparatively, 3.9% of Hercules Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Earnings & Valuation

This table compares PennantPark Floating Rate Capital and Hercules Capital’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
PennantPark Floating Rate Capital N/A N/A N/A $1.46 9.97
Hercules Capital $187.39 million 5.63 $140.30 million $0.92 13.85

Hercules Capital has higher revenue and earnings than PennantPark Floating Rate Capital. PennantPark Floating Rate Capital 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 and Risk

PennantPark Floating Rate Capital has a beta of 0.58, indicating that its share price is 42% less volatile than the S&P 500. Comparatively, Hercules Capital has a beta of 0.85, indicating that its share price is 15% less volatile than the S&P 500.

Summary

Hercules Capital beats PennantPark Floating Rate Capital on 9 of the 14 factors compared between the two stocks.

About PennantPark Floating Rate Capital

PennantPark Floating Rate Capital Ltd. is a business development company. The Company is a closed-end, externally managed and non-diversified investment company. Its investment objectives are to generate current income and capital appreciation by investing primarily in floating rate loans and other investments made to the United States middle-market companies. It provides first lien secured debt and other opportunistic financings (senior notes, second lien, mezzanine, private high yield debt, and preferred and common stock) to middle market sponsors and companies. Its investments may include equity features, such as direct investments in the equity securities of borrowers or warrants or options to buy a minority interest in a portfolio company. It has investments in various sectors, including aerospace and defense; consumer services; healthcare and pharmaceuticals, and others. Its investment activities are managed by the investment advisor, PennantPark Investment Advisers, LLC.

About Hercules Capital

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.

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