THL Credit (NASDAQ: TCRD) and Harvest Capital Credit (NASDAQ:HCAP) are both small-cap financials companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, institutional ownership, valuation, risk, earnings, analyst recommendations and profitability.

Risk and Volatility

THL Credit has a beta of 1.1, suggesting that its share price is 10% more volatile than the S&P 500. Comparatively, Harvest Capital Credit has a beta of 0.66, suggesting that its share price is 34% less volatile than the S&P 500.

Valuation & Earnings

This table compares THL Credit and Harvest Capital Credit’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
THL Credit $84.58 million 3.54 $17.14 million $0.56 16.36
Harvest Capital Credit $20.89 million 3.38 $6.00 million $0.47 23.13

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

Analyst Ratings

This is a breakdown of current ratings and recommmendations for THL Credit and Harvest Capital Credit, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
THL Credit 0 5 2 0 2.29
Harvest Capital Credit 0 1 0 0 2.00

THL Credit currently has a consensus price target of $10.70, suggesting a potential upside of 16.81%. Harvest Capital Credit has a consensus price target of $13.50, suggesting a potential upside of 24.20%. Given Harvest Capital Credit’s higher probable upside, analysts clearly believe Harvest Capital Credit is more favorable than THL Credit.

Profitability

This table compares THL Credit and Harvest Capital Credit’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
THL Credit 23.15% 10.53% 5.78%
Harvest Capital Credit 14.76% 11.04% 6.80%

Institutional & Insider Ownership

43.8% of THL Credit shares are held by institutional investors. Comparatively, 5.7% of Harvest Capital Credit shares are held by institutional investors. 9.4% of THL Credit shares are held by company insiders. Comparatively, 9.5% of Harvest Capital Credit shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Dividends

THL Credit pays an annual dividend of $1.08 per share and has a dividend yield of 11.8%. Harvest Capital Credit pays an annual dividend of $1.35 per share and has a dividend yield of 12.4%. THL Credit pays out 192.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Harvest Capital Credit pays out 287.2% 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

THL Credit beats Harvest Capital Credit on 10 of the 16 factors compared between the two stocks.

THL Credit Company Profile

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.

Harvest Capital Credit Company Profile

Harvest Capital Credit Corporation is an externally managed, closed-end, non-diversified management investment company. The Company operates as a business development company and provides customized financing solutions for small to mid-sized companies. Its investment objective is to generate both current income and capital appreciation by making direct investments in the form of subordinated debt, senior debt, and to a lesser extent, minority equity investments in privately-held the United States small to mid-sized companies. Its investment portfolio includes over 56.8% of senior secured term loans, 40.8% of junior secured term loans, 1.3% of equity investments and 1.1% of collateralized loan obligation (CLO) equity at fair value. It may also invest in other investments, such as loans to larger, publicly-traded companies, high-yield bonds and distressed debt securities. It may also invest in debt and equity securities issued by CLO funds. HCAP Advisors LLC is its investment adviser.

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