Capitala Finance (NASDAQ: CPTA) and Alcentra Capital (NASDAQ:ABDC) are both small-cap finance companies, but which is the better investment? We will contrast the two companies based on the strength of their valuation, dividends, institutional ownership, risk, earnings, profitability and analyst recommendations.

Profitability

This table compares Capitala Finance and Alcentra Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Capitala Finance 3.04% 7.49% 3.19%
Alcentra Capital -2.25% 11.32% 7.03%

Analyst Recommendations

This is a breakdown of current recommendations for Capitala Finance and Alcentra Capital, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Capitala Finance 0 4 1 0 2.20
Alcentra Capital 2 1 1 0 1.75

Capitala Finance currently has a consensus price target of $13.50, suggesting a potential upside of 84.17%. Alcentra Capital has a consensus price target of $12.83, suggesting a potential upside of 48.71%. Given Capitala Finance’s stronger consensus rating and higher probable upside, analysts plainly believe Capitala Finance is more favorable than Alcentra Capital.

Institutional and Insider Ownership

19.3% of Capitala Finance shares are held by institutional investors. Comparatively, 32.1% of Alcentra Capital shares are held by institutional investors. 8.4% of Capitala Finance shares are held by insiders. Comparatively, 5.0% of Alcentra Capital shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Valuation & Earnings

This table compares Capitala Finance and Alcentra Capital’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Capitala Finance $68.31 million 1.71 $9.15 million $0.11 66.64
Alcentra Capital $40.60 million 3.03 $8.78 million ($0.05) -172.57

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

Dividends

Capitala Finance pays an annual dividend of $1.00 per share and has a dividend yield of 13.6%. Alcentra Capital pays an annual dividend of $1.00 per share and has a dividend yield of 11.6%. Capitala Finance pays out 909.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Alcentra Capital pays out -1,999.6% of its earnings in the form of a dividend.

Risk and Volatility

Capitala Finance has a beta of 1.02, indicating that its share price is 2% more volatile than the S&P 500. Comparatively, Alcentra Capital has a beta of 0.62, indicating that its share price is 38% less volatile than the S&P 500.

Summary

Capitala Finance beats Alcentra Capital on 10 of the 15 factors compared between the two stocks.

Capitala Finance Company Profile

Capitala Finance Corp. is an externally managed non-diversified, closed-end management investment company. The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. Both directly and through its subsidiaries that are licensed by the United States Small Business Administration (SBA), the Company offers financing to business owners, management teams and financial sponsors for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives. The Company provides capital to lower and traditional middle-market companies in the United States, with a non-exclusive emphasis on the Southeast, Southwest and Mid-Atlantic regions. The Company invests in first lien, second lien and subordinated loans. The Company’s investment advisor is Capitala Investment Advisors, LLC.

Alcentra Capital Company Profile

Alcentra Capital Corporation is a specialty finance company that operates as a non-diversified, closed-end management investment company. The Company operates as a business development company and a regulated investment company. It provides customized debt and equity financing solutions to lower middle-market companies, which are companies having annual earnings, before interest, taxes, depreciation and amortization of between $5 million and $15 million, and/or revenues of between $10 million and $100 million. Its investments range in size from $5 million to $15 million. Its investment objective is to generate both current income and capital appreciation primarily by making direct investments in lower middle-market companies in the form of senior debt, unitranche, second lien, subordinated debt and, to a lesser extent, senior debt and minority equity investments. Its investment focus is to make loans to, and selected equity investments in, privately-held lower-middle-market companies.

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