Alcentra Capital (NASDAQ: ABDC) and Capitala Finance (NASDAQ:CPTA) are both small-cap financials companies, but which is the superior investment? We will compare the two businesses based on the strength of their analyst recommendations, risk, institutional ownership, profitability, earnings, dividends and valuation.

Volatility and Risk

Alcentra Capital has a beta of 0.62, suggesting that its stock price is 38% less volatile than the S&P 500. Comparatively, Capitala Finance has a beta of 0.97, suggesting that its stock price is 3% less volatile than the S&P 500.

Profitability

This table compares Alcentra Capital and Capitala Finance’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Alcentra Capital -2.25% 11.32% 7.03%
Capitala Finance 3.04% 7.49% 3.19%

Institutional & Insider Ownership

32.1% of Alcentra Capital shares are held by institutional investors. Comparatively, 18.2% of Capitala Finance shares are held by institutional investors. 5.0% of Alcentra Capital shares are held by company insiders. Comparatively, 8.4% of Capitala Finance shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Alcentra Capital and Capitala Finance’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Alcentra Capital $40.60 million 2.85 $8.78 million $0.48 16.94
Capitala Finance $68.31 million 1.82 $9.15 million $0.11 70.82

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

Dividends

Alcentra Capital pays an annual dividend of $1.00 per share and has a dividend yield of 12.3%. Capitala Finance pays an annual dividend of $1.00 per share and has a dividend yield of 12.8%. Alcentra Capital pays out 208.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capitala Finance pays out 909.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Analyst Ratings

This is a breakdown of recent recommendations for Alcentra Capital and Capitala Finance, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Alcentra Capital 1 2 1 0 2.00
Capitala Finance 0 4 1 0 2.20

Alcentra Capital presently has a consensus target price of $12.83, suggesting a potential upside of 57.85%. Capitala Finance has a consensus target price of $13.50, suggesting a potential upside of 73.30%. Given Capitala Finance’s stronger consensus rating and higher probable upside, analysts plainly believe Capitala Finance is more favorable than Alcentra Capital.

Summary

Capitala Finance beats Alcentra Capital on 9 of the 15 factors compared between the two stocks.

About Alcentra Capital

Alcentra Capital Corporation is a specialty finance company that operates as a non-diversified, closed-end management investment company. The Company operates as a business development company and a regulated investment company. It provides customized debt and equity financing solutions to lower middle-market companies, which are companies having annual earnings, before interest, taxes, depreciation and amortization of between $5 million and $15 million, and/or revenues of between $10 million and $100 million. Its investments range in size from $5 million to $15 million. Its investment objective is to generate both current income and capital appreciation primarily by making direct investments in lower middle-market companies in the form of senior debt, unitranche, second lien, subordinated debt and, to a lesser extent, senior debt and minority equity investments. Its investment focus is to make loans to, and selected equity investments in, privately-held lower-middle-market companies.

About Capitala Finance

Capitala Finance Corp. is an externally managed non-diversified, closed-end management investment company. The Company’s investment objective is to generate both current income and capital appreciation through debt and equity investments. Both directly and through its subsidiaries that are licensed by the United States Small Business Administration (SBA), the Company offers financing to business owners, management teams and financial sponsors for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives. The Company provides capital to lower and traditional middle-market companies in the United States, with a non-exclusive emphasis on the Southeast, Southwest and Mid-Atlantic regions. The Company invests in first lien, second lien and subordinated loans. The Company’s investment advisor is Capitala Investment Advisors, LLC.

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