Comparing Solar Capital (SLRC) & OFS Capital (OFS)

Solar Capital (NASDAQ: SLRC) and OFS Capital (NASDAQ:OFS) are both small-cap finance companies, but which is the better stock? We will contrast the two businesses based on the strength of their earnings, valuation, risk, institutional ownership, profitability, analyst recommendations and dividends.

Profitability

This table compares Solar Capital and OFS Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Solar Capital 50.29% 7.32% 4.01%
OFS Capital 25.74% 9.43% 4.79%

Analyst Ratings

This is a summary of current ratings for Solar Capital and OFS Capital, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Solar Capital 0 1 4 0 2.80
OFS Capital 0 1 3 0 2.75

Solar Capital presently has a consensus target price of $23.67, indicating a potential upside of 14.66%. OFS Capital has a consensus target price of $14.67, indicating a potential upside of 28.09%. Given OFS Capital’s higher possible upside, analysts clearly believe OFS Capital is more favorable than Solar Capital.

Insider and Institutional Ownership

63.0% of Solar Capital shares are owned by institutional investors. Comparatively, 28.1% of OFS Capital shares are owned by institutional investors. 5.9% of Solar Capital shares are owned by insiders. Comparatively, 0.0% of OFS Capital shares are owned by 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.

Earnings & Valuation

This table compares Solar Capital and OFS Capital’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Solar Capital $151.84 million 5.74 $106.81 million $1.68 12.29
OFS Capital $31.09 million 4.91 $13.82 million $0.92 12.45

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

Risk and Volatility

Solar Capital has a beta of 0.53, suggesting that its stock price is 47% less volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.38, suggesting that its stock price is 62% less volatile than the S&P 500.

Dividends

Solar Capital pays an annual dividend of $1.60 per share and has a dividend yield of 7.8%. OFS Capital pays an annual dividend of $1.36 per share and has a dividend yield of 11.9%. Solar Capital pays out 95.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital pays out 147.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Solar Capital beats OFS Capital on 12 of the 16 factors compared between the two stocks.

About Solar Capital

Solar Capital Ltd. is a closed-end, externally managed, non-diversified management investment company. The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. It invests in privately held the United States middle market companies. It invests in leveraged middle market companies in the form of senior secured loans, unitranche loans, mezzanine loans and equity securities. It may also invest in public companies that are thinly traded. Its business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Its investments generally range between $5 million and $100 million each. In addition, the Company may invest a portion of its portfolio in other types of investments, which it refers to as opportunistic investments. The Company’s investment activities are managed by Solar Capital Partners, LLC (Solar Capital Partners or the Investment Advisor).

About OFS Capital

OFS Capital Corporation (OFS Capital) is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to provide its shareholders with both current income and capital appreciation primarily through debt investments and equity investments. It focuses primarily on middle-market companies in the United States, including senior secured loans, including first-lien, second-lien and unitranche loans, as well as subordinated loans, and warrants and other minority equity securities. The Company may make investments directly or through OFS SBIC I, LP (SBIC I LP), its investment company subsidiary. It focuses on investments in loans, in which OFS Advisor’s investment professionals have expertise, including investments in first-lien, unitranche, second-lien, and mezzanine loans and, to a lesser extent, on warrants and other equity securities. The Company’s investment activities are managed by OFS Capital Management, LLC (OFS Advisor).

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