Financial Analysis: Gladstone Investment (NASDAQ:GAIN) vs. FS KKR Capital (NYSE:FSK)

Gladstone Investment (NASDAQ:GAIN) and FS KKR Capital (NYSE:FSK) are both finance companies, but which is the superior investment? We will compare the two companies based on the strength of their analyst recommendations, profitability, risk, valuation, earnings, institutional ownership and dividends.

Dividends

Gladstone Investment pays an annual dividend of $0.96 per share and has a dividend yield of 7.0%. FS KKR Capital pays an annual dividend of $2.56 per share and has a dividend yield of 17.7%. Gladstone Investment pays out 38.4% of its earnings in the form of a dividend. FS KKR Capital pays out 263.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Profitability

This table compares Gladstone Investment and FS KKR Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Gladstone Investment	94.99%	7.12%	3.34%
FS KKR Capital	17.24%	5.63%	2.49%

Institutional and Insider Ownership

11.9% of Gladstone Investment shares are owned by institutional investors. Comparatively, 36.3% of FS KKR Capital shares are owned by institutional investors. 2.4% of Gladstone Investment shares are owned by insiders. Comparatively, 0.2% of FS KKR Capital shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Valuation & Earnings

This table compares Gladstone Investment and FS KKR Capital”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Gladstone Investment	$93.66 million	5.84	$65.32 million	$2.50	5.52
FS KKR Capital	$1.72 billion	N/A	$585.00 million	$0.97	14.94

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

Volatility & Risk

Gladstone Investment has a beta of 0.84, suggesting that its stock price is 16% less volatile than the S&P 500. Comparatively, FS KKR Capital has a beta of 0.84, suggesting that its stock price is 16% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Gladstone Investment and FS KKR Capital, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Gladstone Investment	0	4	1	0	2.20
FS KKR Capital	0	8	0	0	2.00

FS KKR Capital has a consensus price target of $17.50, suggesting a potential upside of 20.73%. Given FS KKR Capital’s higher possible upside, analysts clearly believe FS KKR Capital is more favorable than Gladstone Investment.

Summary

Gladstone Investment beats FS KKR Capital on 8 of the 14 factors compared between the two stocks.

About Gladstone Investment

Gladstone Investment Corporation is business development company, specializes in lower middle market, mature stage, buyouts; refinancing existing debt; senior debt securities such as senior loans, senior term loans, lines of credit, and senior notes; senior subordinated debt securities such as senior subordinated loans and senior subordinated notes; junior subordinated debt securities such as subordinated notes and mezzanine loans; limited liability company interests, and warrants or options. The fund does not invest in start-ups. The fund seeks to invest in manufacturing, consumer products and business/consumer services sector. It seeks to invest in small and mid-sized companies based in the United States. The fund prefers to make debt investments between $5 million and $30 million and equity investments between $10 million and $40 million in companies. The fund seeks to invest in companies with revenue between $20 million and $100 million. The fund invests in companies with EBITDA from $3 million to $20 million. It seeks minority equity ownership and prefers to hold a board seat in its portfolio companies. It also prefers to take majority stake in its portfolio companies. The fund typically holds the investments for seven years and exits via sale or recapitalization, initial public offering, or sale to third party.

About FS KKR Capital

FS KKR Capital Corp. is a business development company specializing in investments in debt securities. It provides customized credit solutions to private middle market U.S. companies. It invest primarily in the senior secured debt and, to a lesser extent, the subordinated debt of private middle market U.S. companies. It seeks to purchase interests in loans through secondary market transactions or directly from the target companies as primary market investments. It also seeks to invest in first lien senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans, or mezzanine loans. In connection with the debt investments, the firm also receives equity interests such as warrants or options as additional consideration. It also seek to purchase minority interests in the form of common or preferred equity in our target companies, either in conjunction with one of the debt investments or through a co-investment with a financial sponsor. Additionally, on an opportunistic basis, the fund may also invest in corporate bonds and similar debt securities. The fund does not seek to invest in start-up companies, turnaround situations, or companies with speculative business plans. It seeks to invest in small and middle-market companies based in United States. The fund seeks to invest in firms with annual revenue between $10 million to $2.5 billion. It focus on providing customized one-stop credit solutions to private upper middle market companies with annual EBITDA of $50 million to $100 million at the time of investment. It seeks to exit from securities by selling them in a privately negotiated over- the- counter market. For any investments that are not able to be sold within the secondary market, the firm seeks to exit such investments through repayment, an initial public offering of equity securities, merger, sale or recapitalization.