Analyzing Ellington Credit (NYSE:EARN) & Hennessy Advisors (NASDAQ:HNNA)

Hennessy Advisors (NASDAQ:HNNA) and Ellington Credit (NYSE:EARN) are both small-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their institutional ownership, valuation, earnings, risk, dividends, profitability and analyst recommendations.

Profitability

This table compares Hennessy Advisors and Ellington Credit’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Hennessy Advisors	24.77%	8.31%	5.48%
Ellington Credit	-70.52%	N/A	N/A

Insider & Institutional Ownership

10.3% of Hennessy Advisors shares are owned by institutional investors. Comparatively, 20.4% of Ellington Credit shares are owned by institutional investors. 36.0% of Hennessy Advisors shares are owned by company insiders. Comparatively, 1.4% of Ellington Credit shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Volatility & Risk

Hennessy Advisors has a beta of 0.56, meaning that its share price is 44% less volatile than the S&P 500. Comparatively, Ellington Credit has a beta of 1.32, meaning that its share price is 32% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings for Hennessy Advisors and Ellington Credit, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Hennessy Advisors	0	1	0	0	2.00
Ellington Credit	0	0	1	0	3.00

Ellington Credit has a consensus target price of $5.25, suggesting a potential upside of 50.43%. Given Ellington Credit’s stronger consensus rating and higher possible upside, analysts clearly believe Ellington Credit is more favorable than Hennessy Advisors.

Valuation & Earnings

This table compares Hennessy Advisors and Ellington Credit”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Hennessy Advisors	$35.54 million	2.28	$9.96 million	$1.04	9.86
Ellington Credit	$51.80 million	2.57	-$38.85 million	($0.98)	-3.56

Hennessy Advisors has higher earnings, but lower revenue than Ellington Credit. Ellington Credit is trading at a lower price-to-earnings ratio than Hennessy Advisors, indicating that it is currently the more affordable of the two stocks.

Dividends

Hennessy Advisors pays an annual dividend of $0.60 per share and has a dividend yield of 5.9%. Ellington Credit pays an annual dividend of $0.96 per share and has a dividend yield of 27.5%. Hennessy Advisors pays out 57.7% of its earnings in the form of a dividend. Ellington Credit pays out -98.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Ellington Credit is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Ellington Credit beats Hennessy Advisors on 9 of the 16 factors compared between the two stocks.

About Hennessy Advisors

Hennessy Advisors, Inc. is an employee owned investment manager. It provides its services to Hennessy Funds and investment companies. The firm launches and manages equity, fixed income, and balanced mutual funds. It invests in the public equity and fixed income markets across the globe. The firm primarily invests in growth stocks of companies. It conducts in-house research to make its investments. Hennessy Advisors, Inc. was founded in 1989 and is based in Novato, California with additional offices in Boston, Massachusetts and Chapel Hill, North Carolina.

About Ellington Credit

Ellington Credit Company, a real estate investment trust, acquires, invests in, and manages residential mortgage-and real estate-related assets. It acquires and manages residential mortgage-backed securities (RMBS), including agency pools and agency collateralized mortgage obligations (CMOs); and non-agency RMBS, such as non-agency CMOs, such as investment grade and non-investment grade. The company has elected to be taxed as a real estate investment trust. As a result, it would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders. The company was formerly known as Ellington Residential Mortgage REIT and changed its name to Ellington Credit Company in April 2024. Ellington Credit Company was incorporated in 2012 and is based in Old Greenwich, Connecticut.