Portman Ridge Finance (NASDAQ:PTMN) and Stellus Capital Investment (NYSE:SCM) are both small-cap finance companies, but which is the better investment? We will contrast the two companies based on the strength of their earnings, risk, institutional ownership, dividends, profitability, valuation and analyst recommendations.

Profitability

This table compares Portman Ridge Finance and Stellus Capital Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Portman Ridge Finance -88.64% 3.28% 1.88%
Stellus Capital Investment 51.60% 9.97% 4.47%

Dividends

Portman Ridge Finance pays an annual dividend of $0.40 per share and has a dividend yield of 15.1%. Stellus Capital Investment pays an annual dividend of $1.36 per share and has a dividend yield of 9.6%. Portman Ridge Finance pays out 148.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment pays out 95.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for Portman Ridge Finance and Stellus Capital Investment, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Portman Ridge Finance 0 0 0 0 N/A
Stellus Capital Investment 0 1 0 0 2.00

Stellus Capital Investment has a consensus price target of $14.00, indicating a potential downside of 1.06%. Given Stellus Capital Investment’s higher probable upside, analysts clearly believe Stellus Capital Investment is more favorable than Portman Ridge Finance.

Earnings and Valuation

This table compares Portman Ridge Finance and Stellus Capital Investment’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Portman Ridge Finance $27.09 million 3.65 -$9.57 million $0.27 9.81
Stellus Capital Investment $53.27 million 5.02 $26.19 million $1.42 9.96

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

Institutional and Insider Ownership

27.5% of Portman Ridge Finance shares are held by institutional investors. Comparatively, 17.0% of Stellus Capital Investment shares are held by institutional investors. 8.1% of Portman Ridge Finance shares are held by insiders. Comparatively, 5.4% of Stellus Capital Investment shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Risk and Volatility

Portman Ridge Finance has a beta of 0.89, indicating that its stock price is 11% less volatile than the S&P 500. Comparatively, Stellus Capital Investment has a beta of 0.76, indicating that its stock price is 24% less volatile than the S&P 500.

Summary

Stellus Capital Investment beats Portman Ridge Finance on 10 of the 14 factors compared between the two stocks.

About Portman Ridge Finance

Portman Ridge Finance Corp. is a private equity fund and non-diversified closed-end investment company that invests in middle market companies generating consistent cash flows located in North America. It targets companies operating across a broad range of sectors such as aerospace and defense, automotive, beverage, food and tobacco, broadcasting and entertainment, buildings and real estate, personal and cargo transport, chemicals, plastics and rubber, containers, packaging and glass, diversified or conglomerate service, ecological, electronics, finance, and healthcare. The company was founded on August 8, 2006 and is headquartered in New York, NY.

About Stellus Capital Investment

Stellus Capital Investment Corporation is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.

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