Arlington Asset Investment (NYSE: AI) and Garrison Capital (NASDAQ:GARS) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their risk, earnings, profitability, analyst recommendations, institutional ownership, valuation and dividends.

Institutional & Insider Ownership

37.8% of Arlington Asset Investment shares are held by institutional investors. Comparatively, 24.3% of Garrison Capital shares are held by institutional investors. 5.9% of Arlington Asset Investment shares are held by insiders. Comparatively, 5.8% of Garrison Capital shares are held 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.

Profitability

This table compares Arlington Asset Investment and Garrison Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Arlington Asset Investment 14.42% 4.71% 0.39%
Garrison Capital 14.66% 9.33% 4.49%

Analyst Ratings

This is a summary of recent ratings and price targets for Arlington Asset Investment and Garrison Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Arlington Asset Investment 0 2 2 0 2.50
Garrison Capital 0 5 1 0 2.17

Arlington Asset Investment presently has a consensus target price of $13.31, suggesting a potential upside of 26.07%. Garrison Capital has a consensus target price of $10.33, suggesting a potential upside of 29.82%. Given Garrison Capital’s higher possible upside, analysts clearly believe Garrison Capital is more favorable than Arlington Asset Investment.

Valuation & Earnings

This table compares Arlington Asset Investment and Garrison Capital’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Arlington Asset Investment $121.25 million 2.45 -$41.34 million $0.58 18.21
Garrison Capital $42.95 million 2.97 -$4.80 million $0.34 23.41

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

Dividends

Arlington Asset Investment pays an annual dividend of $2.20 per share and has a dividend yield of 20.8%. Garrison Capital pays an annual dividend of $1.12 per share and has a dividend yield of 14.1%. Arlington Asset Investment pays out 379.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Garrison Capital pays out 329.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Risk and Volatility

Arlington Asset Investment has a beta of 0.83, meaning that its stock price is 17% less volatile than the S&P 500. Comparatively, Garrison Capital has a beta of 0.23, meaning that its stock price is 77% less volatile than the S&P 500.

Arlington Asset Investment Company Profile

Arlington Asset Investment Corp. is an investment company. The Company focuses on acquiring and holding a levered portfolio of residential mortgage-backed securities (MBS), consisting of agency MBS and private-label MBS. Agency MBS include residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a United States Government agency or government-sponsored enterprise (GSE), such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Private-label MBS, or non-agency MBS, include residential MBS that are not guaranteed by a GSE or the United States Government. The Company funds its investments primarily through short-term financing arrangements. The Company purchases agency MBS either in initial offerings or in the secondary market through broker-dealers or similar entities. It may invest in agency MBS collateralized by adjustable-rate mortgage loans (ARMs) or hybrid ARMs.

Garrison Capital Company Profile

Garrison Capital Inc. is a managed, closed-end, non-diversified management investment company. The Company’s investment objective is to generate current income and capital appreciation by making investments primarily in debt securities and loans of the United States-based middle-market companies, which it defines as those having annual earnings before interest, taxes and depreciation, or EBITDA, of certain amount. It invests or provides direct lending in first lien senior secured loans, second lien senior secured loans, one-stop senior secured loans or unitranche loans, subordinated or mezzanine loans, unsecured consumer loans and to a lesser extent, selected equity co-investments in middle-market companies. The Company intends to generate risk-adjusted net returns by assembling a portfolio of investments. The Company’s investment advisor is Garrison Capital Advisers LLC.

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