Reviewing OFS Capital (NASDAQ:OFS) and Main Street Capital (NYSE:MAIN)

OFS Capital (NASDAQ:OFS) and Main Street Capital (NYSE:MAIN) are both finance companies, but which is the superior investment? We will compare the two companies based on the strength of their profitability, dividends, risk, institutional ownership, valuation, analyst recommendations and earnings.

Volatility and Risk

OFS Capital has a beta of 0.87, suggesting that its stock price is 13% less volatile than the S&P 500. Comparatively, Main Street Capital has a beta of 0.8, suggesting that its stock price is 20% less volatile than the S&P 500.

Dividends

OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 14.8%. Main Street Capital pays an annual dividend of $3.06 per share and has a dividend yield of 5.1%. OFS Capital pays out 283.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Main Street Capital pays out 50.7% of its earnings in the form of a dividend. OFS Capital has raised its dividend for 3 consecutive years and Main Street Capital has raised its dividend for 4 consecutive years.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for OFS Capital and Main Street Capital, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
OFS Capital	0	2	0	0	2.00
Main Street Capital	0	5	4	0	2.44

OFS Capital presently has a consensus target price of $7.00, indicating a potential upside of 52.51%. Main Street Capital has a consensus target price of $62.43, indicating a potential upside of 3.65%. Given OFS Capital’s higher probable upside, research analysts clearly believe OFS Capital is more favorable than Main Street Capital.

Valuation & Earnings

This table compares OFS Capital and Main Street Capital”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
OFS Capital	$47.96 million	N/A	$28.44 million	$0.24	19.13
Main Street Capital	$541.03 million	9.97	$508.08 million	$6.03	9.99

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

Profitability

This table compares OFS Capital and Main Street Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
OFS Capital	7.52%	8.95%	3.41%
Main Street Capital	95.59%	12.39%	6.77%

Institutional & Insider Ownership

10.8% of OFS Capital shares are owned by institutional investors. Comparatively, 20.3% of Main Street Capital shares are owned by institutional investors. 0.5% of OFS Capital shares are owned by insiders. Comparatively, 4.1% of Main Street Capital shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Summary

Main Street Capital beats OFS Capital on 12 of the 16 factors compared between the two stocks.

About OFS Capital

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.

About Main Street Capital

Main Street Capital Corporation is a business development company specializes in equity capital to lower middle market companies. The firm specializing in recapitalizations, management buyouts, refinancing, family estate planning, management buyouts, refinancing, industry consolidation, mature, later stage emerging growth. The firm also provides debt capital to middle market companies for acquisitions, management buyouts, growth financings, recapitalizations, and refinancing. The firm seeks to partner with entrepreneurs, business owners and management teams and generally provides “one stop” financing alternatives within its lower middle market portfolio. It prefers to invest in air freight and logistics, auto components, building products, chemicals, commercial services, computers, construction and engineering, consumer finance, consumer services, electronic equipment, energy equipment and services, financial services, health care equipment, health care providers, hotels, restaurants, and leisure, internet software and services, IT Services, machinery, oil, gas and consumable fuels, paper and forest products, professional and industrial services, road and rail, software, specialty retail, telecommunication, consumer discretionary, energy, materials, technology, and transportation. The firm typically invests in lower middle market companies generally with annual revenues between $10 million and $150 million. It prefers to invest in ranging between $5 million and $100 million in equity investment and enterprise value in ranging between $3 million and $20 million. The firm typically prefers to invest in the range of $5 million and $150 million per transaction in debt investment value and in the range of $3 million and $75 million in annual EBITDA in between $3 million and $25 million in lower middle market $5 million and $75 million in credit solution. The firm’s middle market debt investments are made in businesses that are generally larger in size than its lower middle market portfolio companies. It takes 5 percent minority and up to 50 percent majority equity investments. Main Street Capital Corporation was founded in 2007 and is based in Houston, Texas with an additional office in Chojnów, Poland.