Gladstone Capital (NASDAQ:GLAD – Get Free Report) and New Mountain Finance (NASDAQ:NMFC – Get Free Report) are both small-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their risk, analyst recommendations, profitability, dividends, institutional ownership, earnings and valuation.
Profitability
This table compares Gladstone Capital and New Mountain Finance’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Gladstone Capital | 45.15% | 9.79% | 5.31% |
| New Mountain Finance | -18.65% | 11.14% | 4.63% |
Insider and Institutional Ownership
10.7% of Gladstone Capital shares are held by institutional investors. Comparatively, 32.1% of New Mountain Finance shares are held by institutional investors. 3.8% of Gladstone Capital shares are held by insiders. Comparatively, 14.9% of New Mountain Finance shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.
Analyst Ratings
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Gladstone Capital | 0 | 4 | 2 | 0 | 2.33 |
| New Mountain Finance | 2 | 5 | 0 | 0 | 1.71 |
Gladstone Capital presently has a consensus price target of $21.67, indicating a potential upside of 14.34%. New Mountain Finance has a consensus price target of $9.25, indicating a potential upside of 18.74%. Given New Mountain Finance’s higher possible upside, analysts clearly believe New Mountain Finance is more favorable than Gladstone Capital.
Risk & Volatility
Gladstone Capital has a beta of 0.92, indicating that its stock price is 8% less volatile than the S&P 500. Comparatively, New Mountain Finance has a beta of 0.54, indicating that its stock price is 46% less volatile than the S&P 500.
Valuation & Earnings
This table compares Gladstone Capital and New Mountain Finance”s revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Gladstone Capital | $89.12 million | 4.80 | $58.11 million | $1.83 | 10.36 |
| New Mountain Finance | $327.08 million | 2.25 | $16.49 million | ($0.58) | -13.43 |
Gladstone Capital has higher earnings, but lower revenue than New Mountain Finance. New Mountain Finance is trading at a lower price-to-earnings ratio than Gladstone Capital, indicating that it is currently the more affordable of the two stocks.
Dividends
Gladstone Capital pays an annual dividend of $1.80 per share and has a dividend yield of 9.5%. New Mountain Finance pays an annual dividend of $1.28 per share and has a dividend yield of 16.4%. Gladstone Capital pays out 98.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. New Mountain Finance pays out -220.7% of its earnings in the form of a dividend. Gladstone Capital has increased its dividend for 4 consecutive years. New Mountain Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.
Summary
Gladstone Capital beats New Mountain Finance on 10 of the 17 factors compared between the two stocks.
About Gladstone Capital
Gladstone Capital Corporation is a business development company specializing in lower middle market, growth capital, add on acquisitions, change of control, buy & build strategies, debt refinancing, debt investments in senior term loans, revolving loans, secured first and second lien term loans, senior subordinated loans, unitranche loans, junior subordinated loans, and mezzanine loans and equity investments in the form of common stock, preferred stock, limited liability company interests, or warrants. It operates as a business development company. The fund also makes private equity investments in acquisitions, buyouts and recapitalizations, and refinancing existing debts. It targets small and medium-sized companies in United States. It is industry agnostic and seeks to invest in companies engaged in the business services, light and specialty manufacturing, niche industrial products and services, specialty consumer products and services, energy services, transportation and logistics, healthcare and education services, specialty chemicals, media and communications and aerospace and defense. The fund seeks to invest between $7 million and $30 million in companies that have between $20 million and $150 million in sales and EBITDA between $3 million and $25 million. It prefers to acquire minority stakes. It seeks to exit its investments through strategic acquisitions by other industry participants or financial buyers, initial public offerings of common stock, or other capital market transactions.
About New Mountain Finance
New Mountain Finance Corporation (Nasdaq: NMFC), a business development company is a private equity / buyouts and loan fund specializes in directly investing and lending to middle market companies in defensive growth industries. The fund prefers investing in buyout and middle market companies. It also makes investments in debt securities at all levels of the capital structure including first and second lien debt, unsecured notes, and mezzanine securities. In some cases, its investments may also include equity interests. It targets energy, engineering and consulting services, specialty chemicals and materials, trading companies and distributors, commercial printing, diversified support services, education services, environmental and facilities services, office services and supplies, media, distributors, health care services, health care facilities, application software, business services, systems software, federal services, distribution and logistics, interactive home entertainment, telecommunication services, hydroelectric power generation, electric power generation by fossil fuels, electric power generation by nuclear fuels, health care technology, and security and alarm services. The fund seeks to invest in United States of America. It seeks to invest between $10 million and $125 million per transaction. The firm invests through both primary originations and open-market secondary purchases. It invests in companies with EBITDA between $10 million and $200 million. The fund seeks a majority stake in its portfolio companies.
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