Critical Contrast: Prospect Capital (NASDAQ:PSEC) versus Hamilton Lane (NASDAQ:HLNE)

Hamilton Lane (NASDAQ:HLNE) and Prospect Capital (NASDAQ:PSEC) are both finance companies, but which is the better investment? We will contrast the two companies based on the strength of their earnings, institutional ownership, valuation, profitability, risk, analyst recommendations and dividends.

Dividends

Hamilton Lane pays an annual dividend of $2.16 per share and has a dividend yield of 1.6%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 21.5%. Hamilton Lane pays out 39.1% of its earnings in the form of a dividend. Prospect Capital pays out -62.8% 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. Hamilton Lane has raised its dividend for 8 consecutive years. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Hamilton Lane and Prospect Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Hamilton Lane	31.12%	29.43%	16.41%
Prospect Capital	-42.50%	12.29%	5.63%

Analyst Ratings

This is a breakdown of recent recommendations for Hamilton Lane and Prospect Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Hamilton Lane	0	5	4	1	2.60
Prospect Capital	2	0	0	0	1.00

Hamilton Lane currently has a consensus price target of $160.50, indicating a potential upside of 15.91%. Prospect Capital has a consensus price target of $2.50, indicating a potential downside of 0.40%. Given Hamilton Lane’s stronger consensus rating and higher possible upside, equities research analysts clearly believe Hamilton Lane is more favorable than Prospect Capital.

Valuation & Earnings

This table compares Hamilton Lane and Prospect Capital”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Hamilton Lane	$712.96 million	10.84	$217.42 million	$5.52	25.09
Prospect Capital	$719.44 million	1.64	-$469.92 million	($0.86)	-2.92

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

Insider & Institutional Ownership

97.4% of Hamilton Lane shares are held by institutional investors. Comparatively, 9.1% of Prospect Capital shares are held by institutional investors. 22.2% of Hamilton Lane shares are held by company insiders. Comparatively, 28.0% of Prospect Capital shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Volatility and Risk

Hamilton Lane has a beta of 1.33, suggesting that its share price is 33% more volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.85, suggesting that its share price is 15% less volatile than the S&P 500.

Summary

Hamilton Lane beats Prospect Capital on 14 of the 18 factors compared between the two stocks.

About Hamilton Lane

Hamilton Lane Incorporated is a private equity firm specializing in early venture, emerging growth, turnaround, middle market, mature, mid-venture, bridge, buyout, distressed/vulture, loan, mezzanine in growth capital companies. It prefers to invest in energy, industrials, consumer discretionary, health care, real estate, information technology, utilities, and consumer services. The firm prefers to invest in Africa/Middle East, Asia/Pacific, Europe, Latin America and Caribbean, United States of America, and Canada. The firm prefers to invest between $1 million and $100 million. It prefers to take majority stake. Hamilton Lane Incorporated was founded in 1991 and is based in Conshohocken, Pennsylvania with additional offices across Europe, North America, Asia Pacific and the Middle East.

About Prospect Capital

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, market place lending and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, senior and secured term loans, unitranche debt, first-lien and second lien, private debt, private equity, mezzanine debt, and equity investments in private and microcap public businesses. It focuses on both primary origination and secondary loans/portfolios and invests in situations like debt financings for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, real estate financings/investments. It also focuses on investing in small-sized and medium-sized private companies rather than large public companies. The fund typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. It invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada. The fund seeks to invest between $10 million to $500 million per transaction in companies with EBITDA between $5 million and $150 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1000 million. It fund also co-invests for larger deals. The fund seeks control acquisitions by providing multiple levels of the capital structure. The fund focuses on sole, agented, club, or syndicated deals.