Analyzing Prospect Capital (PSEC) & Fidus Investment (FDUS)

Prospect Capital (NASDAQ: PSEC) and Fidus Investment (NASDAQ:FDUS) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their valuation, earnings, dividends, institutional ownership, analyst recommendations, risk and profitability.

Analyst Recommendations

This is a summary of current ratings and target prices for Prospect Capital and Fidus Investment, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Prospect Capital 1 3 0 0 1.75
Fidus Investment 0 2 0 0 2.00

Prospect Capital currently has a consensus target price of $6.17, suggesting a potential downside of 8.78%. Fidus Investment has a consensus target price of $17.50, suggesting a potential upside of 10.06%. Given Fidus Investment’s stronger consensus rating and higher possible upside, analysts clearly believe Fidus Investment is more favorable than Prospect Capital.

Valuation and Earnings

This table compares Prospect Capital and Fidus Investment’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Prospect Capital $701.05 million 3.48 $252.90 million $0.50 13.52
Fidus Investment $60.23 million 6.47 $41.57 million $1.97 8.07

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

Profitability

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

Net Margins Return on Equity Return on Assets
Prospect Capital 27.00% 8.63% 4.75%
Fidus Investment 64.21% 9.18% 5.75%

Volatility & Risk

Prospect Capital has a beta of 0.56, indicating that its stock price is 44% less volatile than the S&P 500. Comparatively, Fidus Investment has a beta of 1.11, indicating that its stock price is 11% more volatile than the S&P 500.

Insider & Institutional Ownership

15.7% of Prospect Capital shares are owned by institutional investors. Comparatively, 32.1% of Fidus Investment shares are owned by institutional investors. 7.1% of Prospect Capital shares are owned by insiders. Comparatively, 1.3% of Fidus Investment shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Dividends

Prospect Capital pays an annual dividend of $0.72 per share and has a dividend yield of 10.7%. Fidus Investment pays an annual dividend of $1.56 per share and has a dividend yield of 9.8%. Prospect Capital pays out 144.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Fidus Investment pays out 79.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Fidus Investment beats Prospect Capital on 11 of the 15 factors compared between the two stocks.

Prospect Capital Company Profile

Prospect Capital Corporation is a financial services company. The Company primarily lends to and invests in middle market privately held companies. The Company is a closed-end investment company. Its investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The Company invests primarily in senior and subordinated debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations and other purposes. The Company makes investments, including lending in private equity sponsored transactions, lending directly to companies not owned by private equity firms, control investments in corporate operating companies, control investments in financial companies, investments in structured credit, real estate investments, investments in syndicated debt, aircraft leasing and online lending. The Company is managed by its investment advisor, Prospect Capital Management L.P.

Fidus Investment Company Profile

Fidus Investment Corporation is a closed-end, non-diversified investment company. The Company provides customized debt and equity financing solutions to lower middle-market companies. The Company’s investment objective is to provide attractive risk-adjusted returns by generating both current income from its debt investments and capital appreciation from its equity-related investments. The Company typically invests in mezzanine debt, which includes senior subordinated notes and junior secured loans. The Company structures some of its debt investments as senior secured or unitranche loans. The Company’s equity securities typically consist of either a direct minority equity investment in common or preferred stock or membership/partnership interests of a portfolio company, or it may receive warrants to buy a minority equity interest in a portfolio company in connection with a debt investment. Its investment activities are managed by Fidus Investment Advisors, LLC, its investment advisor.

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