Critical Survey: iShares Nasdaq Biotechnology Index Fund (IBB) and Capital Southwest (CSWC)

Capital Southwest (NASDAQ: CSWC) and iShares Nasdaq Biotechnology Index Fund (NASDAQ:IBB) are both finance companies, but which is the better stock? We will compare the two businesses based on the strength of their earnings, analyst recommendations, valuation, institutional ownership, dividends, profitability and risk.

Earnings and Valuation

This table compares Capital Southwest and iShares Nasdaq Biotechnology Index Fund’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Capital Southwest $23.50 million 11.60 $23.47 million $1.73 9.84
iShares Nasdaq Biotechnology Index Fund N/A N/A N/A N/A N/A

Capital Southwest has higher revenue and earnings than iShares Nasdaq Biotechnology Index Fund.

Risk and Volatility

Capital Southwest has a beta of -0.55, meaning that its stock price is 155% less volatile than the S&P 500. Comparatively, iShares Nasdaq Biotechnology Index Fund has a beta of 1.38, meaning that its stock price is 38% more volatile than the S&P 500.

Insider and Institutional Ownership

60.0% of Capital Southwest shares are owned by institutional investors. Comparatively, 63.3% of iShares Nasdaq Biotechnology Index Fund shares are owned by institutional investors. 5.9% of Capital Southwest shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Capital Southwest and iShares Nasdaq Biotechnology Index Fund’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Capital Southwest 90.67% 5.09% 4.37%
iShares Nasdaq Biotechnology Index Fund N/A N/A N/A

Analyst Recommendations

This is a breakdown of recent ratings for Capital Southwest and iShares Nasdaq Biotechnology Index Fund, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Capital Southwest 0 1 4 0 2.80
iShares Nasdaq Biotechnology Index Fund 0 0 1 0 3.00

Capital Southwest presently has a consensus target price of $20.00, indicating a potential upside of 17.51%. Given Capital Southwest’s higher possible upside, research analysts plainly believe Capital Southwest is more favorable than iShares Nasdaq Biotechnology Index Fund.

Dividends

Capital Southwest pays an annual dividend of $0.96 per share and has a dividend yield of 5.6%. iShares Nasdaq Biotechnology Index Fund pays an annual dividend of $0.69 per share and has a dividend yield of 0.7%. Capital Southwest pays out 55.5% of its earnings in the form of a dividend.

Summary

Capital Southwest beats iShares Nasdaq Biotechnology Index Fund on 8 of the 12 factors compared between the two stocks.

About Capital Southwest

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 iShares Nasdaq Biotechnology Index Fund

iShares Nasdaq Biotechnology ETF (the Fund), formerly iShares Nasdaq Biotechnology Index Fund, is an exchange-traded fund (ETF). The Fund seeks investment results that correspond generally to the price and yield performance of the NASDAQ Biotechnology Index (the Index). The Index contains securities of NASDAQ listed companies that are classified according to the Industry Classification Benchmark as either biotechnology or pharmaceuticals, which also meet other eligibility criteria determined by NASDAQ. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. Due to the use of representative sampling, the Fund may or may not hold all of the securities that are included in the Index. The Fund’s investment advisor is BlackRock Fund Advisors, which is indirectly owned by BlackRock, Inc.

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