KCAP Financial (NASDAQ: KCAP) and Harvest Capital Credit (NASDAQ:HCAP) are both small-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their risk, dividends, earnings, profitability, valuation, analyst recommendations and institutional ownership.

Institutional & Insider Ownership

20.2% of KCAP Financial shares are owned by institutional investors. Comparatively, 5.7% of Harvest Capital Credit shares are owned by institutional investors. 8.0% of KCAP Financial shares are owned by company insiders. Comparatively, 9.5% of Harvest Capital Credit 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 and Valuation

This table compares KCAP Financial and Harvest Capital Credit’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
KCAP Financial $36.20 million 3.54 -$1.03 million $0.06 57.17
Harvest Capital Credit $20.89 million 3.53 $6.00 million $0.47 24.19

Harvest Capital Credit has lower revenue, but higher earnings than KCAP Financial. Harvest Capital Credit 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 Ratings

This is a breakdown of recent ratings and target prices for KCAP Financial and Harvest Capital Credit, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
KCAP Financial 0 2 1 0 2.33
Harvest Capital Credit 0 1 0 0 2.00

KCAP Financial currently has a consensus price target of $9.75, suggesting a potential upside of 184.26%. Harvest Capital Credit has a consensus price target of $13.50, suggesting a potential upside of 18.73%. Given KCAP Financial’s stronger consensus rating and higher probable upside, equities analysts plainly believe KCAP Financial is more favorable than Harvest Capital Credit.

Dividends

KCAP Financial pays an annual dividend of $0.40 per share and has a dividend yield of 11.7%. Harvest Capital Credit pays an annual dividend of $1.35 per share and has a dividend yield of 11.9%. KCAP Financial pays out 666.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Harvest Capital Credit pays out 287.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Harvest Capital Credit is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares KCAP Financial and Harvest Capital Credit’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
KCAP Financial 7.78% 6.54% 3.46%
Harvest Capital Credit 14.76% 11.04% 6.80%

Volatility and Risk

KCAP Financial has a beta of 1.71, suggesting that its stock price is 71% more volatile than the S&P 500. Comparatively, Harvest Capital Credit has a beta of 0.67, suggesting that its stock price is 33% less volatile than the S&P 500.

About KCAP Financial

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.

About Harvest Capital Credit

Harvest Capital Credit Corporation is an externally managed, closed-end, non-diversified management investment company. The Company operates as a business development company and provides customized financing solutions for small to mid-sized companies. Its investment objective is to generate both current income and capital appreciation by making direct investments in the form of subordinated debt, senior debt, and to a lesser extent, minority equity investments in privately-held the United States small to mid-sized companies. Its investment portfolio includes over 56.8% of senior secured term loans, 40.8% of junior secured term loans, 1.3% of equity investments and 1.1% of collateralized loan obligation (CLO) equity at fair value. It may also invest in other investments, such as loans to larger, publicly-traded companies, high-yield bonds and distressed debt securities. It may also invest in debt and equity securities issued by CLO funds. HCAP Advisors LLC is its investment adviser.

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