Analyzing OFS Capital (NASDAQ:OFS) and Saratoga Investment (NYSE:SAR)

OFS Capital (NASDAQ:OFS) and Saratoga Investment (NYSE:SAR) are both finance companies, but which is the better business? We will compare the two companies based on the strength of their dividends, institutional ownership, profitability, earnings, analyst recommendations, valuation and risk.

Dividends

OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 14.2%. Saratoga Investment pays an annual dividend of $3.00 per share and has a dividend yield of 12.9%. OFS Capital pays out 283.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Saratoga Investment pays out 128.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital has raised its dividend for 3 consecutive years. OFS Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings & Valuation

This table compares OFS Capital and Saratoga Investment”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
OFS Capital	$47.96 million	N/A	$28.44 million	$0.24	20.00
Saratoga Investment	$148.85 million	2.52	$28.09 million	$2.34	9.94

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

Analyst Ratings

This is a breakdown of current ratings and recommmendations for OFS Capital and Saratoga Investment, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
OFS Capital	0	2	0	0	2.00
Saratoga Investment	0	6	0	0	2.00

OFS Capital presently has a consensus price target of $7.00, suggesting a potential upside of 45.83%. Saratoga Investment has a consensus price target of $23.63, suggesting a potential upside of 1.55%. Given OFS Capital’s higher probable upside, equities analysts clearly believe OFS Capital is more favorable than Saratoga Investment.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
OFS Capital	7.52%	8.95%	3.41%
Saratoga Investment	27.19%	10.09%	3.29%

Institutional and Insider Ownership

10.8% of OFS Capital shares are held by institutional investors. Comparatively, 19.1% of Saratoga Investment shares are held by institutional investors. 0.5% of OFS Capital shares are held by insiders. Comparatively, 10.0% of Saratoga Investment shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Risk and Volatility

OFS Capital has a beta of 0.85, suggesting that its stock price is 15% less volatile than the S&P 500. Comparatively, Saratoga Investment has a beta of 0.56, suggesting that its stock price is 44% less volatile than the S&P 500.

About OFS Capital

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.

About Saratoga Investment

Saratoga Investment Corp. is a business development company specializing in leveraged and management buyouts, acquisition financings, growth financings, recapitalization, debt refinancing, and transitional financing transactions at the lower end of middle market companies. It structures its investments as debt and equity by investing through first and second lien loans, mezzanine debt, co-investments, select high yield bonds, senior secured bonds, unsecured bonds, and preferred and common equity. The firm prefers to invest in aerospace, automotive aftermarket and services, business products and services, consumer products and services, education, environmental services, industrial services, financial services, food and beverage, healthcare products and services, logistics, distribution, manufacturing, restaurants services, food services, software services, technology services, specialty chemical, media and telecommunications. It seeks to invest in the United States. The firm primarily invests $5 million to $50 million in companies having EBITDA of $2 million or greater and revenues of $8 million to $250 million. The firm prefer to take a majority stake. It invests through direct lending as well as participation in loan syndicates. The firm was formerly known as GSC Investment Corp. Saratoga Investment Corp. was formed on 2007 and is based in New York, New York with an additional office in Florham Park, New Jersey.