Source Capital (NYSE:SOR) and Solar Capital (NASDAQ:SLRC) are both small-cap finance companies, but which is the better stock? We will compare the two businesses based on the strength of their profitability, institutional ownership, earnings, risk, valuation, dividends and analyst recommendations.

Earnings & Valuation

This table compares Source Capital and Solar Capital’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Source Capital N/A N/A N/A N/A N/A
Solar Capital $154.71 million 4.05 $56.02 million $1.71 8.66

Solar Capital has higher revenue and earnings than Source Capital.

Risk & Volatility

Source Capital has a beta of 0.73, suggesting that its share price is 27% less volatile than the S&P 500. Comparatively, Solar Capital has a beta of 1.29, suggesting that its share price is 29% more volatile than the S&P 500.

Profitability

This table compares Source Capital and Solar Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Source Capital N/A N/A N/A
Solar Capital -29.85% 7.59% 3.91%

Dividends

Source Capital pays an annual dividend of $1.00 per share and has a dividend yield of 3.2%. Solar Capital pays an annual dividend of $1.64 per share and has a dividend yield of 11.1%. Solar Capital pays out 95.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Insider and Institutional Ownership

20.2% of Source Capital shares are held by institutional investors. Comparatively, 59.1% of Solar Capital shares are held by institutional investors. 77.0% of Source Capital shares are held by company insiders. Comparatively, 6.0% of Solar Capital shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Source Capital and Solar Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Source Capital 0 0 0 0 N/A
Solar Capital 0 1 6 0 2.86

Solar Capital has a consensus price target of $18.42, indicating a potential upside of 24.35%. Given Solar Capital’s higher possible upside, analysts plainly believe Solar Capital is more favorable than Source Capital.

Summary

Solar Capital beats Source Capital on 8 of the 11 factors compared between the two stocks.

About Source Capital

Source Capital, Inc. is a close-ended balanced fund launched and managed by First Pacific Advisors, LLC. The fund invests in the public equity markets of the United States. It seeks to invest in the stocks of companies operating across diversified sectors. The fund primarily invests in value stocks of small to mid cap companies. It employs fundamental analysis with a bottom-up stock selection approach, focusing on such factors as high liquidity, relatively unleveraged balance sheets, and long-term ability to earn above-average returns on capital to create its portfolio. The fund benchmarks the performance of its portfolio against the Russell 2500 Index, the S&P 500 Index, and the Nasdaq Composite Index. Source Capital, Inc. was formed in June 1, 1968 and is domiciled in the United States.

About Solar Capital

Solar Capital Ltd. is a business development company specializing in secured debt (first lien unitranche and second lien), subordinated (unsecured) debt, minority equity, and strategic income-oriented control equity investments in leveraged middle market companies. The fund invests in aerospace and defense; air freight & logistics; asset management; automotive; banking; beverage, food and tobacco; building products; buildings and real estate; broadcasting and entertainment; cargo transport; commercial services and supplies; communications equipment; chemicals, plastics and rubber; containers, packaging and glass; construction & engineering; diversified/conglomerate manufacturing; consumer Finance; distributors; diversified/conglomerate services; diversified financial services; diversified real estate sctivities; food products; Footwear; Education Services; diversified telecommunications services; electronics; farming and agriculture; finance; grocery; health care equipment and supplies; health care facilities; education and childcare; home and office furnishing, durable consumer products; hotels, motels, inns and gaming; insurance; restaurants, leisure, amusement, and entertainment; leisure equipment tolls and services, media, multiline retail, multi sector holdings; paper and forest products; personal products; professional services, research and consulting services, software; specialty retail; textiles apparel and luxury goods, thrifts and mortgage finance, trading companies and distributors, utilities, and wireless telecommunication services; industrial conglomerates; internet software and services, IT services, machinery; mining, steel, iron, and non precious metals; oil and gas; personal, food and miscellaneous services; printing and publishing; retail stores; telecommunications; textiles and leather; and utilities. It also invests in life sciences with focus on specialty pharmaceuticals, medical devices, biotech, health Care Providers and services; health Care technology, enabling technologies and tools. The fund primarily invests in United States. The fund's investments generally range between $5 million and $100 million. The fund invests in companies with revenues between $50 million and $1 billion and EBITDA between $15 million and $100 million. It invests in the form of senior secured loans, mezzanine loans, and equity securities. It may also seek investments in thinly traded public companies and also make secondary investments. The fund makes non-control equity investments. It primarily exits within three years of the initial capital commitment.

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