Hercules Capital (NYSE: HTGC) and Stellus Capital Investment (NYSE:SCM) are both small-cap financials companies, but which is the better investment? We will compare the two businesses based on the strength of their risk, earnings, analyst recommendations, institutional ownership, profitability, valuation and dividends.
Insider & Institutional Ownership
38.8% of Hercules Capital shares are held by institutional investors. Comparatively, 27.1% of Stellus Capital Investment shares are held by institutional investors. 3.2% of Hercules Capital shares are held by company insiders. Comparatively, 4.2% of Stellus Capital Investment shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.
Hercules Capital has a beta of 0.87, suggesting that its share price is 13% less volatile than the S&P 500. Comparatively, Stellus Capital Investment has a beta of 0.53, suggesting that its share price is 47% less volatile than the S&P 500.
This is a summary of current ratings and target prices for Hercules Capital and Stellus Capital Investment, as reported by MarketBeat.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Stellus Capital Investment||0||1||3||0||2.75|
Hercules Capital presently has a consensus target price of $14.36, suggesting a potential upside of 11.07%. Stellus Capital Investment has a consensus target price of $14.50, suggesting a potential upside of 8.86%. Given Hercules Capital’s higher probable upside, equities research analysts plainly believe Hercules Capital is more favorable than Stellus Capital Investment.
This table compares Hercules Capital and Stellus Capital Investment’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Stellus Capital Investment||57.94%||9.35%||4.96%|
Earnings and Valuation
This table compares Hercules Capital and Stellus Capital Investment’s top-line revenue, earnings per share and valuation.
|Gross Revenue||Price/Sales Ratio||Net Income||Earnings Per Share||Price/Earnings Ratio|
|Hercules Capital||$175.05 million||6.22||$68.70 million||$0.91||14.21|
|Stellus Capital Investment||$39.49 million||5.38||$23.19 million||$1.68||7.93|
Hercules Capital has higher revenue and earnings than Stellus Capital Investment. Stellus Capital Investment is trading at a lower price-to-earnings ratio than Hercules Capital, indicating that it is currently the more affordable of the two stocks.
Hercules Capital pays an annual dividend of $1.24 per share and has a dividend yield of 9.6%. Stellus Capital Investment pays an annual dividend of $1.36 per share and has a dividend yield of 10.2%. Hercules Capital pays out 136.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment pays out 81.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.
Hercules Capital beats Stellus Capital Investment on 10 of the 16 factors compared between the two stocks.
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.
About Stellus Capital Investment
Stellus Capital Investment Corporation is a closed-end, non-diversified management investment company. The Company originates and invests primarily in private middle-market companies through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation. It invests in various sectors, such as business services, energy, general industrial, government services, healthcare, software and specialty finance. Its investment advisor is Stellus Capital Management, LLC (Stellus Capital Management). Stellus Capital Management is responsible for analyzing investment opportunities, conducting research and performing due diligence on investments, negotiating and structuring the Company’s investments, originating prospective investments, and monitoring its investments and portfolio companies on an ongoing basis.
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