Analyzing T. Rowe Price Group (NASDAQ:TROW) & Capital Southwest (NASDAQ:CSWC)

Capital Southwest (NASDAQ:CSWC) and T. Rowe Price Group (NASDAQ:TROW) are both finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their profitability, dividends, risk, earnings, institutional ownership, analyst recommendations and valuation.

Analyst Ratings

This is a summary of current ratings and recommmendations for Capital Southwest and T. Rowe Price Group, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Capital Southwest	0	3	7	0	2.70
T. Rowe Price Group	4	12	0	0	1.75

Capital Southwest presently has a consensus price target of $23.64, suggesting a potential upside of 1.95%. T. Rowe Price Group has a consensus price target of $103.50, suggesting a potential upside of 9.43%. Given T. Rowe Price Group’s higher possible upside, analysts plainly believe T. Rowe Price Group is more favorable than Capital Southwest.

Institutional & Insider Ownership

23.4% of Capital Southwest shares are held by institutional investors. Comparatively, 73.4% of T. Rowe Price Group shares are held by institutional investors. 2.8% of Capital Southwest shares are held by company insiders. Comparatively, 2.0% of T. Rowe Price Group shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Valuation and Earnings

This table compares Capital Southwest and T. Rowe Price Group”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Capital Southwest	$149.51 million	9.33	$70.55 million	$1.81	12.81
T. Rowe Price Group	$7.31 billion	2.82	$2.10 billion	$9.25	10.22

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

Dividends

Capital Southwest pays an annual dividend of $2.32 per share and has a dividend yield of 10.0%. T. Rowe Price Group pays an annual dividend of $5.08 per share and has a dividend yield of 5.4%. Capital Southwest pays out 128.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. T. Rowe Price Group pays out 54.9% of its earnings in the form of a dividend. Capital Southwest has increased its dividend for 2 consecutive years and T. Rowe Price Group has increased its dividend for 39 consecutive years.

Volatility and Risk

Capital Southwest has a beta of 0.76, indicating that its stock price is 24% less volatile than the S&P 500. Comparatively, T. Rowe Price Group has a beta of 1.53, indicating that its stock price is 53% more volatile than the S&P 500.

Profitability

This table compares Capital Southwest and T. Rowe Price Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Capital Southwest	45.46%	13.76%	6.51%
T. Rowe Price Group	28.53%	20.36%	15.29%

Summary

T. Rowe Price Group beats Capital Southwest on 10 of the 17 factors compared between the two stocks.

About Capital Southwest

Capital Southwest Corporation is a business development company specializing in credit and private equity and venture capital investments in middle market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, industry consolidation, recapitalizations and growth capital investments. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. In lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts, and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. The firm is Industry agnostic, but it prefers to invest in Industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, tech-enabled services and SaaS models. The firm seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation. Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products. The firm seeks to invest in the United States and North America. The firm seeks to make investments ranging from $5 million and $25 million in securities. It leads $5 to $70 million financings, Its Target holds of $5 million and $45 million, and the firm is willing to backstop up to $55mm with an active network of co-investors. It seeks to invest in the firm with minimum EBITDA is $3 million and $25 million. In addition to making direct investments, the firm allocates capital to syndicated first and second lien term loans in the upper middle market. Criteria for Upper Middle Market Syndicated 1st Lien is EBITDA Size more than $30 million, Closing Leverage greater than 4 times, investment hold size between $5 million and $7 million up to $15mm with senior loan fund, investment yield greater than 6.5%. Criteria for Upper Middle Market Syndicated 2nd Lien is EBITDA Size more than $50 million, Closing Leverage greater than 6 times, investment hold size between $5 million and $7 million, investment yield greater than 9%. It prefers to take a majority and minority stake. The firm has the flexibility to hold investments for very long period in its portfolio companies. It may also invest through warrants. The firm prefers to take Board participation in its portfolio companies. Capital Southwest Corporation was founded on April 19, 1961 and is based in Dallas, Texas.

About T. Rowe Price Group

T. Rowe Price Group, Inc. is a publicly owned investment manager. The firm provides its services to individuals, institutional investors, retirement plans, financial intermediaries, and institutions. It launches and manages equity and fixed income mutual funds. The firm invests in the public equity and fixed income markets across the globe. It employs fundamental and quantitative analysis with a bottom-up approach. The firm utilizes in-house and external research to make its investments. It employs socially responsible investing with a focus on environmental, social, and governance issues. It makes investment in late-stage venture capital transactions and usually invests between $3 million and $5 million. The firm was previously known as T. Rowe Group, Inc. and T. Rowe Price Associates, Inc. T. Rowe Price Group, Inc. was founded in 1937 and is based in Baltimore, Maryland, with additional offices in Colorado Springs, Colorado; Owings Mills, Maryland; San Francisco, California; New York, New York; Philadelphia, Pennsylvania; Tampa, Florida; Toronto, Ontario; Hellerup, Denmark; Amsterdam, The Netherlands; Luxembourg, Grand Duchy of Luxembourg; Zurich, Switzerland; Dubai, United Arab Emirates; London, United Kingdom; Sydney, New South Wales; Hong Kong; Tokyo, Japan; Singapore; Frankfurt, Shanghai, China; Germany, Madrid, Spain, Milan, Italy, Stockholm, Sweden, Melbourne, Australia, Amsterdam, Netherlands and Washington, DC.