THL Credit (NASDAQ: OFS) and OFS Capital (NASDAQ:OFS) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their analyst recommendations, valuation, profitability, dividends, institutional ownership, risk and earnings.
Volatility & Risk
THL Credit has a beta of 1.07, suggesting that its share price is 7% more volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.47, suggesting that its share price is 53% less volatile than the S&P 500.
This table compares THL Credit and OFS Capital’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
Institutional and Insider Ownership
44.6% of THL Credit shares are held by institutional investors. Comparatively, 26.0% of OFS Capital shares are held by institutional investors. 0.5% of THL Credit shares are held by company insiders. Comparatively, 0.0% of OFS Capital shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.
Earnings & Valuation
This table compares THL Credit and OFS Capital’s top-line revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|THL Credit||$78.77 million||3.42||-$7.90 million||$1.21||6.82|
|OFS Capital||$33.43 million||4.71||$7.90 million||$1.28||9.22|
OFS Capital has lower revenue, but higher earnings than THL Credit. THL Credit is trading at a lower price-to-earnings ratio than OFS Capital, indicating that it is currently the more affordable of the two stocks.
THL Credit pays an annual dividend of $1.08 per share and has a dividend yield of 13.1%. OFS Capital pays an annual dividend of $1.36 per share and has a dividend yield of 11.5%. THL Credit pays out 89.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital pays out 106.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. THL Credit is clearly the better dividend stock, given its higher yield and lower payout ratio.
This is a summary of current recommendations and price targets for THL Credit and OFS Capital, as provided by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
THL Credit presently has a consensus target price of $10.00, suggesting a potential upside of 21.21%. OFS Capital has a consensus target price of $15.00, suggesting a potential upside of 27.12%. Given OFS Capital’s stronger consensus rating and higher probable upside, analysts clearly believe OFS Capital is more favorable than THL Credit.
About THL Credit
THL Credit, Inc. 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, primarily through investments in privately negotiated debt and equity securities of lower middle market companies. The Company is a direct lender to lower middle-market companies and invests primarily in directly originated first lien senior secured loans, including unitranche investments. In certain instances, it also makes second lien secured loans and subordinated, or mezzanine, debt investments, which may include an associated equity component, such as warrants, preferred stock or similar securities, and direct equity investments. Its first lien senior secured loans may be structured as traditional first lien senior secured loans or as unitranche loans. The Company’s investment activities are managed by THL Credit Advisors LLC.
About OFS Capital
OFS Capital Corporation (OFS Capital) is an externally managed, closed-end, non-diversified management investment company. The Company’s investment objective is to provide its shareholders with both current income and capital appreciation primarily through debt investments and equity investments. It focuses primarily on middle-market companies in the United States, including senior secured loans, including first-lien, second-lien and unitranche loans, as well as subordinated loans, and warrants and other minority equity securities. The Company may make investments directly or through OFS SBIC I, LP (SBIC I LP), its investment company subsidiary. It focuses on investments in loans, in which OFS Advisor’s investment professionals have expertise, including investments in first-lien, unitranche, second-lien, and mezzanine loans and, to a lesser extent, on warrants and other equity securities. The Company’s investment activities are managed by OFS Capital Management, LLC (OFS Advisor).
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