Runway Growth Finance (NASDAQ:RWAY) & Bain Capital Specialty Finance (NYSE:BCSF) Critical Analysis

Runway Growth Finance (NASDAQ:RWAY) and Bain Capital Specialty Finance (NYSE:BCSF) are both small-cap finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, valuation, analyst recommendations, risk, institutional ownership, profitability and earnings.

Earnings & Valuation

This table compares Runway Growth Finance and Bain Capital Specialty Finance”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Runway Growth Finance	$137.33 million	1.91	$34.05 million	($0.09)	-68.44
Bain Capital Specialty Finance	$273.24 million	3.04	$98.76 million	$1.14	11.23

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

Institutional and Insider Ownership

64.6% of Runway Growth Finance shares are owned by institutional investors. 1.0% of Runway Growth Finance shares are owned by company insiders. Comparatively, 0.6% of Bain Capital Specialty Finance shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares Runway Growth Finance and Bain Capital Specialty Finance’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Runway Growth Finance	-2.00%	10.87%	5.37%
Bain Capital Specialty Finance	27.00%	10.44%	4.35%

Risk & Volatility

Runway Growth Finance has a beta of 0.64, indicating that its stock price is 36% less volatile than the S&P 500. Comparatively, Bain Capital Specialty Finance has a beta of 0.57, indicating that its stock price is 43% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Runway Growth Finance and Bain Capital Specialty Finance, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Runway Growth Finance	0	5	2	0	2.29
Bain Capital Specialty Finance	0	2	1	0	2.33

Runway Growth Finance presently has a consensus target price of $8.88, suggesting a potential upside of 44.07%. Bain Capital Specialty Finance has a consensus target price of $14.00, suggesting a potential upside of 9.34%. Given Runway Growth Finance’s higher possible upside, analysts plainly believe Runway Growth Finance is more favorable than Bain Capital Specialty Finance.

Dividends

Runway Growth Finance pays an annual dividend of $1.32 per share and has a dividend yield of 21.4%. Bain Capital Specialty Finance pays an annual dividend of $1.68 per share and has a dividend yield of 13.1%. Runway Growth Finance pays out -1,466.7% of its earnings in the form of a dividend. Bain Capital Specialty Finance pays out 147.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Bain Capital Specialty Finance has raised its dividend for 4 consecutive years. Runway Growth Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Runway Growth Finance beats Bain Capital Specialty Finance on 9 of the 17 factors compared between the two stocks.

About Runway Growth Finance

Runway Growth Finance Corp. is a business development company specializing investments in senior-secured loans to late stage and growth companies. It prefers to make investments in companies engaged in the technology, life sciences, healthcare and information services, business services and select consumer services and products sectors. It prefers to investments in companies engaged in electronic equipment and instruments, systems software, hardware, storage and peripherals and specialized consumer services, application software, healthcare technology, internet software and services, data processing and outsourced services, internet retail, human resources and employment services, biotechnology, healthcare equipment and education services. It invests in senior secured loans between $10 million and $75 million.

About Bain Capital Specialty Finance

Bain Capital Specialty Finance, Inc. is business development company specializing in direct loans to middle-market companies. The fund seeks to invest in senior investments with a first or second lien on collateral, senior first lien, stretch senior, senior second lien, unitranche, mezzanine debt, junior securities, other junior investments, and secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. It typically invests in companies with EBITDA between $10 million and $150 million.