Contrasting Gladstone Investment (GAIN) and Ares Capital (NASDAQ:ARCC)

Ares Capital (NASDAQ: ARCC) and Gladstone Investment (NASDAQ:GAIN) are both finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their analyst recommendations, earnings, dividends, institutional ownership, valuation, risk and profitability.

Valuation & Earnings

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This table compares Ares Capital and Gladstone Investment’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Ares Capital $1.16 billion 5.83 $667.00 million $1.39 11.42
Gladstone Investment $51.88 million 6.33 $44.76 million $0.74 13.65

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

Risk and Volatility

Ares Capital has a beta of 0.6, suggesting that its share price is 40% less volatile than the S&P 500. Comparatively, Gladstone Investment has a beta of 0.52, suggesting that its share price is 48% less volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Ares Capital and Gladstone Investment, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Capital 0 2 8 0 2.80
Gladstone Investment 0 1 2 0 2.67

Ares Capital currently has a consensus target price of $18.00, indicating a potential upside of 13.42%. Gladstone Investment has a consensus target price of $10.50, indicating a potential upside of 3.96%. Given Ares Capital’s stronger consensus rating and higher probable upside, equities analysts clearly believe Ares Capital is more favorable than Gladstone Investment.

Dividends

Ares Capital pays an annual dividend of $1.52 per share and has a dividend yield of 9.6%. Gladstone Investment pays an annual dividend of $0.78 per share and has a dividend yield of 7.7%. Ares Capital pays out 109.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Investment pays out 105.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Institutional & Insider Ownership

42.7% of Ares Capital shares are owned by institutional investors. Comparatively, 16.8% of Gladstone Investment shares are owned by institutional investors. 0.5% of Ares Capital shares are owned by insiders. Comparatively, 2.4% of Gladstone Investment shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares Ares Capital and Gladstone Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Ares Capital 57.50% 8.43% 4.88%
Gladstone Investment 87.19% 7.46% 4.52%

Summary

Ares Capital beats Gladstone Investment on 11 of the 16 factors compared between the two stocks.

Ares Capital Company Profile

Ares Capital Corporation is a specialty finance company. The Company operates as a closed-end, 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 primarily in the United States middle-market companies. It may from time to time invest in larger or smaller (in particular, for investments in early-stage and/or venture capital-backed) companies. It invests primarily in first lien senior secured loans (including unitranche loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans, and mezzanine debt, which in some cases includes an equity component. It invests in various industries, such as automotive services, business services, consumer products, and containers and packaging. Ares Capital Management LLC serves as its investment advisor.

Gladstone Investment Company Profile

Gladstone Investment Corporation is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objectives are to achieve and grow current income by investing in debt securities of established businesses that it believes will provide stable earnings and cash flow to pay expenses, make principal and interest payments on its outstanding indebtedness and make distributions to stockholders that grow over time, and provide its stockholders with long-term capital appreciation in the value of its assets by investing in equity securities, generally in combination with the aforementioned debt securities, of businesses that it believes can grow over time to permit it to sell its equity investments for capital gains. It has investments in sectors, such as chemicals, plastics, and rubber, and home and office furnishings, house wares, and durable consumer products, among others. Its investment advisor is Gladstone Management Corporation.

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