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

Insider & Institutional Ownership

32.5% of FS Investment shares are owned by institutional investors. Comparatively, 39.0% of Hercules Capital shares are owned by institutional investors. 1.0% of FS Investment shares are owned by insiders. Comparatively, 3.2% of Hercules Capital shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Analyst Ratings

This is a breakdown of current ratings for FS Investment and Hercules Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
FS Investment 0 4 0 0 2.00
Hercules Capital 0 3 7 0 2.70

FS Investment presently has a consensus price target of $9.67, indicating a potential upside of 19.34%. Hercules Capital has a consensus price target of $14.36, indicating a potential upside of 7.25%. Given FS Investment’s higher possible upside, equities research analysts clearly believe FS Investment is more favorable than Hercules Capital.

Valuation and Earnings

This table compares FS Investment and Hercules Capital’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
FS Investment $422.81 million 4.71 $294.29 million $0.89 9.10
Hercules Capital $175.05 million 6.44 $68.70 million $0.91 14.71

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

Dividends

FS Investment pays an annual dividend of $0.89 per share and has a dividend yield of 11.0%. Hercules Capital pays an annual dividend of $1.24 per share and has a dividend yield of 9.3%. FS Investment pays out 100.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Hercules Capital pays out 136.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. FS Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

FS Investment has a beta of 0.94, indicating that its stock price is 6% less volatile than the S&P 500. Comparatively, Hercules Capital has a beta of 0.84, indicating that its stock price is 16% less volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
FS Investment 52.49% 8.97% 4.96%
Hercules Capital 39.73% 12.93% 6.75%

Summary

Hercules Capital beats FS Investment on 9 of the 16 factors compared between the two stocks.

FS Investment Company Profile

FS Investment Corporation is an externally managed, non-diversified, closed-end management investment company. The Company’s investment objectives are to generate current income and long-term capital appreciation. Its portfolio consists primarily of investments in senior secured loans and second lien secured loans of the private United States middle market companies and subordinated loans of the private United States companies. It may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the over-the-counter market or directly from target companies as primary market or directly originated investments. It invests in a range of industries, including capital goods; consumer services; consumer durables and apparel; materials; commercial and professional services, and diversified financials. Its investment advisor is FB Income Advisor, LLC.

Hercules Capital Company Profile

Hercules Capital, Inc. is a specialty finance company. The Company is an internally managed, non-diversified, closed-end investment company. The Company focuses on providing senior secured venture growth loans to venture capital-backed companies in a range of technology, life sciences, and sustainable and renewable technology industries. The Company’s investment objective is to maximize its portfolio total return by generating current income from its debt investments and capital appreciation from its warrant and equity-related investments. The Company’s primary business objectives are to increase its net income, net operating income and net asset value (NAV) by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. The Company focuses its investments in companies active in the technology industry sub-sectors.

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