Financial Comparison: XP (NASDAQ:XP) vs. Gladstone Investment (NASDAQ:GAIN)

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

Valuation and Earnings

This table compares Gladstone Investment and XP”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Gladstone Investment	$99.08 million	6.53	$184.75 million	$4.18	3.89
XP	$8.42 billion	1.28	$925.91 million	$1.91	10.47

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

Insider and Institutional Ownership

11.8% of Gladstone Investment shares are held by institutional investors. Comparatively, 59.2% of XP shares are held by institutional investors. 2.2% of Gladstone Investment shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Risk and Volatility

Gladstone Investment has a beta of 0.77, indicating that its share price is 23% less volatile than the S&P 500. Comparatively, XP has a beta of 1.08, indicating that its share price is 8% more volatile than the S&P 500.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Gladstone Investment	158.95%	5.90%	2.88%
XP	27.20%	22.19%	1.33%

Analyst Recommendations

This is a breakdown of current ratings and recommmendations for Gladstone Investment and XP, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Gladstone Investment	0	0	3	1	3.25
XP	0	2	4	0	2.67

Gladstone Investment presently has a consensus price target of $16.75, suggesting a potential upside of 3.14%. XP has a consensus price target of $23.00, suggesting a potential upside of 15.06%. Given XP’s higher possible upside, analysts clearly believe XP is more favorable than Gladstone Investment.

Dividends

Gladstone Investment pays an annual dividend of $0.96 per share and has a dividend yield of 5.9%. XP pays an annual dividend of $0.40 per share and has a dividend yield of 2.0%. Gladstone Investment pays out 23.0% of its earnings in the form of a dividend. XP pays out 20.9% 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.

Summary

XP beats Gladstone Investment on 9 of the 17 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 XP

XP Inc. provides financial products and services in Brazil. It offers securities brokerage, private pension plans, commercial, and investment banking products, such as loan operations and transactions in the foreign exchange markets and deposits; product structuring and capital markets services for corporate clients and issuers of fixed income products; advisory services for mass-affluent and institutional clients; and wealth management services for high-net-worth customers and institutional clients. The company also offers XP Educação, an online financial education portal that offers seminars, classes, and learning tools to help teach individuals on topics, such as basics of investing, techniques, and investment strategies, as well as insurance brokerage services. In addition, it operates XP Platform, an open product platform that provides clients to access investment products in the market, including equity and fixed income securities, mutual and hedge funds, structured products, life insurance, pension plans, real-estate investment funds, and others. The company was founded in 2001 and is based in São Paulo, Brazil.