KCAP Financial (NASDAQ: KCAP) and Hercules Capital (NYSE:HTGC) are both small-cap finance companies, but which is the better stock? We will compare the two companies based on the strength of their earnings, risk, institutional ownership, profitability, dividends, analyst recommendations and valuation.
This table compares KCAP Financial and Hercules Capital’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
Earnings and Valuation
This table compares KCAP Financial and Hercules Capital’s gross revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|KCAP Financial||$32.54 million||3.89||$5.55 million||$0.15||22.80|
|Hercules Capital||$187.39 million||5.32||$140.30 million||$0.92||13.09|
Hercules Capital has higher revenue and earnings than KCAP Financial. Hercules Capital is trading at a lower price-to-earnings ratio than KCAP Financial, indicating that it is currently the more affordable of the two stocks.
Insider and Institutional Ownership
20.2% of KCAP Financial shares are owned by institutional investors. Comparatively, 44.6% of Hercules Capital shares are owned by institutional investors. 8.0% of KCAP Financial shares are owned by insiders. Comparatively, 3.9% of Hercules Capital shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.
Volatility & Risk
KCAP Financial has a beta of 1.69, suggesting that its stock price is 69% more volatile than the S&P 500. Comparatively, Hercules Capital has a beta of 0.83, suggesting that its stock price is 17% less volatile than the S&P 500.
This is a breakdown of current ratings and recommmendations for KCAP Financial and Hercules Capital, as provided by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
KCAP Financial currently has a consensus price target of $9.75, suggesting a potential upside of 185.09%. Hercules Capital has a consensus price target of $15.08, suggesting a potential upside of 25.28%. Given KCAP Financial’s higher probable upside, research analysts plainly believe KCAP Financial is more favorable than Hercules Capital.
KCAP Financial pays an annual dividend of $0.48 per share and has a dividend yield of 14.0%. Hercules Capital pays an annual dividend of $1.24 per share and has a dividend yield of 10.3%. KCAP Financial pays out 320.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Hercules Capital pays out 134.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.
Hercules Capital beats KCAP Financial on 12 of the 16 factors compared between the two stocks.
About KCAP Financial
KCAP Financial, Inc. is an internally managed, non-diversified closed-end investment company. The Company has approximately three principal areas of investments. First, the Company originates, structures and invests in senior secured term loans and mezzanine debt primarily in privately-held middle market companies (the debt securities portfolio). In addition, the Company may invest in the equity securities of privately held middle market companies. Second, the Company invests in asset management companies (the Asset Manager Affiliates) that manage collateralized loan obligation funds (CLO Funds). Third, the Company invests in debt and subordinated securities issued by CLOs (CLO fund securities). These CLO fund securities are primarily managed by its Asset Manager Affiliates, but from time-to-time the Company makes investments in CLO Fund Securities managed by other asset managers. The CLO funds typically invest in syndicated loans, high-yield bonds and other credit instruments.
About Hercules Capital
Hercules Capital, Inc. is a specialty finance company. The Company is an internally managed, non-diversified, closed-end investment company. The Company focuses on providing senior secured venture growth loans to venture capital-backed companies in a range of technology, life sciences, and sustainable and renewable technology industries. The Company’s investment objective is to maximize its portfolio total return by generating current income from its debt investments and capital appreciation from its warrant and equity-related investments. The Company’s primary business objectives are to increase its net income, net operating income and net asset value (NAV) by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. The Company focuses its investments in companies active in the technology industry sub-sectors.
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