Capital Southwest (NASDAQ:CSWC) and Rand Capital (NASDAQ:RAND) are both small-cap finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their dividends, profitability, institutional ownership, earnings, valuation, risk and analyst recommendations.

Profitability

This table compares Capital Southwest and Rand Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Capital Southwest 53.87% 8.27% 4.91%
Rand Capital -5.13% 0.07% 0.05%

Analyst Ratings

This is a summary of recent ratings for Capital Southwest and Rand Capital, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Capital Southwest 0 1 2 0 2.67
Rand Capital 0 0 0 0 N/A

Capital Southwest presently has a consensus price target of $23.33, indicating a potential upside of 2.56%. Given Capital Southwest’s higher probable upside, research analysts clearly believe Capital Southwest is more favorable than Rand Capital.

Insider & Institutional Ownership

51.1% of Capital Southwest shares are held by institutional investors. Comparatively, 12.7% of Rand Capital shares are held by institutional investors. 6.8% of Capital Southwest shares are held by company insiders. Comparatively, 9.7% of Rand Capital shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Valuation & Earnings

This table compares Capital Southwest and Rand Capital’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Capital Southwest $51.88 million 7.76 $33.06 million $1.42 16.03
Rand Capital $2.11 million 8.82 -$390,000.00 N/A N/A

Capital Southwest has higher revenue and earnings than Rand Capital.

Risk & Volatility

Capital Southwest has a beta of 0.21, indicating that its stock price is 79% less volatile than the S&P 500. Comparatively, Rand Capital has a beta of 0.02, indicating that its stock price is 98% less volatile than the S&P 500.

Dividends

Capital Southwest pays an annual dividend of $1.56 per share and has a dividend yield of 6.9%. Rand Capital does not pay a dividend. Capital Southwest pays out 109.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capital Southwest has raised its dividend for 3 consecutive years.

Summary

Capital Southwest beats Rand Capital on 11 of the 14 factors compared between the two stocks.

Capital Southwest Company Profile

Capital Southwest Corporation is a business development company specializing in credit and private equity and venture capital investments in middle market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, recapitalizations and growth capital investments. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. In lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts, and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. It prefers to invest in Industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, tech-enabled services and SaaS models. The firm seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation. Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products. The firm seeks to invest in the United States. The firm seeks to make investments ranging from $5 to $25 million in securities. It seeks to make equity investments up to $5 million and debt investments between $5 million and $20 million and co-invest in transaction size upto $40 million. It prefers to invest in companies with revenues approaching above $10 million, profitable operations, historical growth rate of at least 15 percent per year. . Within the lower middle market, it seeks to invest in with less than $15 million in EBITDA and also opportunistically invests in the upper middle market, generally defined as companies with EBITDA in excess of $50 million. In addition to making direct investments, the firm allocates capital to syndicated first and second lien term loans in the upper middle market. Criteria for Upper Middle Market Syndicated 1st Lien is EBITDA Size more than $30 million, Closing Leverage greater than 4 times, investment hold size between $5 million and $7 million, investment yield greater than 6.5%. Criteria for Upper Middle Market Syndicated 2nd Lien is EBITDA Size more than $50 million, Closing Leverage greater than 6 times, investment hold size between $5 million and $7 million, investment yield greater than 9%. It prefers to take a majority and minority stake. The firm has the flexibility to hold investments for very long period in its portfolio companies. It may also invest through warrants. The firm prefers to take Board participation in its portfolio companies. Capital Southwest Corporation was founded on April 19, 1961 and is based in Dallas, Texas.

Rand Capital Company Profile

Rand Capital Corporation is a business development company specializing in venture capital and private equity investments. The firm prefers to make investments through equity or debt instruments in early venture, expansion stage, and in small to medium-sized privately held companies. It generally lends to more mature companies. The firm does not prefer to invest in real estate sector. It invests in companies that are engaged in the exploitation of new or unique products, technologies, or services. The firm invests in healthcare, consumer products, manufacturing, software, and professional services. It seeks to invest in companies based in the Western and Upstate New York region and its surrounding states with focus on Buffalo and Niagara region. The firm may invest in region within three to five hour drives from Western New York including Canada. It typically invests between $0.5 million and $1.5 million and the total investment in rounds is between $1 million and $5 million. The firm seeks to invest up to maximum of $3 million total per company as part of follow-on investments. It invest in startups and companies having annual revenue up to $10 million. The firm seeks to be a lead investor in companies within its geographical area and participates in syndicate/co-invest with other investors outside it. It prefers to invest in businesses that are unique or possess proprietary right. The firm prefers to be a minority investor and seeks to take a Board seat in its portfolio companies. It typically holds its investments for a period of five to seven years. Rand Capital Corporation was founded in 1969 and is based in Buffalo, New York.

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