Ares Capital (NASDAQ:ARCC – Get Free Report) and Horizon Technology Finance (NASDAQ:HRZN – Get Free Report) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their analyst recommendations, profitability, earnings, valuation, dividends, institutional ownership and risk.
Dividends
Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.2%. Horizon Technology Finance pays an annual dividend of $0.72 per share and has a dividend yield of 17.2%. Ares Capital pays out 117.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Horizon Technology Finance pays out 167.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.
Volatility & Risk
Ares Capital has a beta of 0.58, meaning that its stock price is 42% less volatile than the S&P 500. Comparatively, Horizon Technology Finance has a beta of 0.99, meaning that its stock price is 1% less volatile than the S&P 500.
Analyst Recommendations
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Ares Capital | 0 | 2 | 9 | 0 | 2.82 |
| Horizon Technology Finance | 1 | 5 | 1 | 0 | 2.00 |
Ares Capital presently has a consensus price target of $20.75, suggesting a potential upside of 10.31%. Horizon Technology Finance has a consensus price target of $5.65, suggesting a potential upside of 34.84%. Given Horizon Technology Finance’s higher possible upside, analysts plainly believe Horizon Technology Finance is more favorable than Ares Capital.
Insider & Institutional Ownership
27.4% of Ares Capital shares are held by institutional investors. Comparatively, 4.9% of Horizon Technology Finance shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 0.3% of Horizon Technology Finance shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.
Profitability
This table compares Ares Capital and Horizon Technology Finance’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Ares Capital | 37.30% | 9.85% | 4.59% |
| Horizon Technology Finance | 22.55% | 13.63% | 5.53% |
Earnings and Valuation
This table compares Ares Capital and Horizon Technology Finance”s gross revenue, earnings per share and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Ares Capital | $3.05 billion | 4.43 | $1.30 billion | $1.63 | 11.54 |
| Horizon Technology Finance | $96.02 million | 2.98 | -$2.66 million | $0.43 | 9.74 |
Ares Capital has higher revenue and earnings than Horizon Technology Finance. Horizon Technology Finance is trading at a lower price-to-earnings ratio than Ares Capital, indicating that it is currently the more affordable of the two stocks.
Summary
Ares Capital beats Horizon Technology Finance on 11 of the 16 factors compared between the two stocks.
About Ares Capital
Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.
About Horizon Technology Finance
Horizon Technology Finance Corporation is a business development company specializing in lending and and investing in development-stage investments. It focuses on making secured debt and venture lending investments to venture capital backed companies in the technology, life science, healthcare information and services, cleantech and sustainability industries. It seeks to invest in companies in the United States.
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