CION Investment (NYSE:CION) & Hercules Capital (NYSE:HTGC) Critical Review

Hercules Capital (NYSE:HTGC) and CION Investment (NYSE:CION) are both finance companies, but which is the superior business? We will compare the two businesses based on the strength of their institutional ownership, earnings, risk, profitability, analyst recommendations, dividends and valuation.

Insider and Institutional Ownership

19.7% of Hercules Capital shares are owned by institutional investors. Comparatively, 32.0% of CION Investment shares are owned by institutional investors. 1.8% of Hercules Capital shares are owned by company insiders. Comparatively, 0.6% of CION Investment shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Dividends

Hercules Capital pays an annual dividend of $1.60 per share and has a dividend yield of 8.6%. CION Investment pays an annual dividend of $1.44 per share and has a dividend yield of 15.0%. Hercules Capital pays out 93.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. CION Investment pays out 282.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Hercules Capital has increased its dividend for 1 consecutive years and CION Investment has increased its dividend for 1 consecutive years.

Risk and Volatility

Hercules Capital has a beta of 0.84, suggesting that its share price is 16% less volatile than the S&P 500. Comparatively, CION Investment has a beta of 1.07, suggesting that its share price is 7% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Hercules Capital and CION Investment, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Hercules Capital	0	2	6	1	2.89
CION Investment	1	1	0	1	2.33

Hercules Capital currently has a consensus price target of $20.32, suggesting a potential upside of 8.93%. CION Investment has a consensus price target of $8.50, suggesting a potential downside of 11.32%. Given Hercules Capital’s stronger consensus rating and higher possible upside, research analysts plainly believe Hercules Capital is more favorable than CION Investment.

Profitability

This table compares Hercules Capital and CION Investment’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Hercules Capital	60.05%	16.13%	8.11%
CION Investment	10.59%	12.02%	4.91%

Earnings and Valuation

This table compares Hercules Capital and CION Investment”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Hercules Capital	$493.59 million	6.87	$262.97 million	$1.72	10.85
CION Investment	$252.43 million	1.98	$33.90 million	$0.51	18.79

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

Summary

Hercules Capital beats CION Investment on 12 of the 16 factors compared between the two stocks.

About Hercules Capital

Hercules Capital, Inc. is a business development company. The firm specializing in providing venture debt, debt, senior secured loans, and growth capital to privately held venture capital-backed companies at all stages of development from startups to expansion stage including select publicly listed companies and select special opportunity lower middle market companies that require additional capital to fund acquisitions, recapitalizations and refinancing and established-stage companies. The firm provides growth capital financing solutions for capital extension; management buy-out and corporate spin-out financing solutions; company, asset specific, or intellectual property acquisition financing; convertible, subordinated and/or mezzanine loans; domestic and international corporate expansion; vendor financing; revenue acceleration by sales and marketing development, and manufacturing expansion. It provides asset-based financing with a focus on cash flow; accounts receivable facilities; equipment loans or leases; equipment acquisition; facilities build-out and/or expansion; working capital revolving lines of credit; inventory. The firm also provides bridge financing to IPO or mergers and acquisitions or technology acquisition; dividend recapitalizations and other sources of investor liquidity; cash flow financing to protect against share price volatility; competitor acquisition; pre-IPO financing for extra cash on the balance sheet; public company financing to continue asset growth and production capacity; short-term bridge financing; and strategic and intellectual property acquisition financings. It also focuses on customized financing solutions, emerging growth, mid venture, and late venture financing. The firm invests primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. The firm generally seeks to invest in companies that have been operating for at least six to 12 months prior to the date of their investment. It prefers to invest in technology, SaaS Finance, energy technology, sustainable and renewable technology, and life sciences. Within technology the firm focuses on advanced specialty materials and chemicals; communication and networking, consumer and business products; consumer products and services, digital media and consumer internet; electronics and computer hardware; enterprise software and services; gaming; healthcare services; information services; business services; media, content and information; mobile; resource management; security software; semiconductors; semiconductors and hardware; and software sector. Within energy technology, it invests in agriculture; clean technology; energy and renewable technology, fuels, and power technology; geothermal; smart grid and energy efficiency and monitoring technologies; solar; and wind. Within life sciences, the firm invests in biopharmaceuticals; biotechnology tools; diagnostics; drug discovery, drug platform, development, and delivery; medical devices and equipment; surgical devices; therapeutics; pharma services; and specialty pharmaceuticals. Within sustainable and renewables, it invests in Vehicle Technology, Energy Generation and Storage, Ag Technology, Advanced Materials, and Industry 4.0. It also invests in educational services. The firm invests primarily in United States based companies and considers investment in the West Coast, Mid-Atlantic regions, Southeast and Midwest, particularly in the areas of software, biotech, and information services. The firm prefers to invest between $5 million and $200 million in equity per transactions. It invests generally between $1 million and $40 million in companies focused primarily on business services, communications, electronics, hardware, and healthcare services. The firm invests primarily in private companies but also have investments in public companies. For equity investments, the firm seeks to represent a controlling interest in its portfolio companies which may exceed 25% of the voting securities of such companies. The firm seeks to invest a limited portion of its assets in equipment-based loans to early-stage prospective portfolio companies. These loans are generally for amounts up to $3 million but may be up to $15 million for certain energy technology venture investments. The firm allows certain debt investments have the right to convert a portion of the debt investment into equity. It also co-invests with other private equity firms. The firm seeks to exit its investments through initial public offering, a private sale of equity interest to a third party, a merger or an acquisition of the company or a purchase of the equity position by the company or one of its stockholders. The firm has structured debt with warrants which typically have maturities of between two and seven years with an average of three years; senior debt with an investment horizon of less than three years; equipment loans with an investment horizon ranging from three to four years; and equity related securities with an investment horizon ranging from three to seven years. The firm prefers to invest through its balance sheet capital. The firm formerly known as Hercules Technology Growth Capital, Inc. Hercules Capital, Inc. was founded in December 2003 and is based in San Mateo, California with additional offices in North America and Europe.

About CION Investment

CION Investment Corporation is a business development company. It specializes in investments in senior secured loans, including unitranche loans, First Lien, second lien loans, long-term subordinated loans, and mezzanine loans; equity interests such as warrants or options; and corporate bonds; and other debt securities in middle-market companies. The firm invests in growth capital, acquisitions, leveraged buyouts, market/product expansion, refinancing and recapitalization. The fund also invests up to 30 percent of their assets opportunistically in other types of investments, including the securities of larger public companies and foreign securities. It also makes investments in the secondary loan market. The fund does not invest in start-up companies, turnaround situations, or companies with speculative business plans. The fund prefers to invest in high tech industries, healthcare, pharmaceuticals, business services, media, chemicals, plastic, rubber, telecommunication, consumer services, advertising, printing and publishing, consumer goods, durables, diversified financials, and other industries. It also invests in homebuilding, restaurants, beverage and tobacco bars, broadcasting, distributors, Non-durable good distribution, food beverage and tobacco, energy, oil gas and consumables fuels, insurance, aerospace and defense, industrial machinery, paper and forest product machinery, information technology, metals and mining, and real estate. It primarily seeks to invest in the United States. The fund seeks to invest between $5 million and $50 million in companies with an EBITDA between $25 million and $75 million with average targeted hold of $25 million. It also purchases minority interests in the form of common or preferred equity in the target companies, typically in conjunction with its debt investments or through a co-investment with a financial sponsor. The fund seeks to exit its investments through an initial public offering of common stock, a merger, a sale, or other recapitalization.