Head-To-Head Review: Capital Southwest Corporation (NASDAQ:CSWC) vs. Saratoga Investment Corp (SAR)

Capital Southwest Corporation (NASDAQ: CSWC) and Saratoga Investment Corp (NYSE:SAR) are both small-cap finance companies, but which is the superior stock? We will compare the two companies based on the strength of their dividends, earnings, risk, valuation, analyst recommendations, profitability and institutional ownership.

Profitability

This table compares Capital Southwest Corporation and Saratoga Investment Corp’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Capital Southwest Corporation 96.98% 4.34% 3.86%
Saratoga Investment Corp 11.65% 3.19% 1.20%

Earnings & Valuation

This table compares Capital Southwest Corporation and Saratoga Investment Corp’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Capital Southwest Corporation $27.04 million 9.66 $15.30 million $1.64 9.95
Saratoga Investment Corp $33.96 million 3.61 $9.43 million $1.58 13.00

Capital Southwest Corporation has higher revenue, but lower earnings than Saratoga Investment Corp. Capital Southwest Corporation is trading at a lower price-to-earnings ratio than Saratoga Investment Corp, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of recent ratings and price targets for Capital Southwest Corporation and Saratoga Investment Corp, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Capital Southwest Corporation 0 1 2 0 2.67
Saratoga Investment Corp 0 0 0 0 N/A

Capital Southwest Corporation currently has a consensus target price of $20.67, indicating a potential upside of 26.71%. Given Capital Southwest Corporation’s higher possible upside, equities research analysts plainly believe Capital Southwest Corporation is more favorable than Saratoga Investment Corp.

Institutional and Insider Ownership

62.7% of Capital Southwest Corporation shares are owned by institutional investors. Comparatively, 16.2% of Saratoga Investment Corp shares are owned by institutional investors. 5.9% of Capital Southwest Corporation shares are owned by insiders. Comparatively, 32.0% of Saratoga Investment Corp shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Volatility & Risk

Capital Southwest Corporation has a beta of -0.49, indicating that its stock price is 149% less volatile than the S&P 500. Comparatively, Saratoga Investment Corp has a beta of 0.5, indicating that its stock price is 50% less volatile than the S&P 500.

Dividends

Capital Southwest Corporation pays an annual dividend of $0.84 per share and has a dividend yield of 5.2%. Saratoga Investment Corp pays an annual dividend of $1.88 per share and has a dividend yield of 9.2%. Capital Southwest Corporation pays out 51.2% of its earnings in the form of a dividend. Saratoga Investment Corp pays out 119.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Capital Southwest Corporation beats Saratoga Investment Corp on 11 of the 15 factors compared between the two stocks.

About Capital Southwest Corporation

Capital Southwest Corporation is an investment company that specializes in providing customized financing to middle market companies in a range of industry segments located primarily in the United States. The Company is a specialty lending company. Its principal investment objective is to produce risk-adjusted returns by generating current income from debt investments and capital appreciation from its equity and equity related investments. It focuses on partnering with business owners, management teams and financial sponsors to provide financing solutions to fund growth, changes of control, or other corporate events. In allocating future investments, it focuses on investing in senior and subordinated debt securities secured by security interests in portfolio company assets, coupled with equity interests. It targets senior and subordinated investments in the lower middle market and private loan transactions, as well as first and second lien syndicated loans in middle market companies.

About Saratoga Investment Corp

Saratoga Investment Corp. is a specialty finance company. The Company is an externally managed, closed-end, non-diversified management investment company. The Company invests primarily in leveraged loans and mezzanine debt issued by private middle-market companies in the United States. Its investment objective is to generate current income and, to a lesser extent, capital appreciation from its investments. It purchases mezzanine debt and makes equity investments in middle market companies. It may invest in other investments, such as investments in distressed debt, including securities of companies in bankruptcy, foreign debt, private equity, securities of public companies that are not thinly traded and structured finance vehicles, such as collateralized loan obligation funds. Its leveraged loan portfolio consists primarily of first lien and second lien term loans. The Company’s investment activities are externally managed and advised by Saratoga Investment Advisors, LLC.

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