WhiteHorse Finance (WHF) vs. Stellus Capital Investment (SCM) Head to Head Survey

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

Dividends

WhiteHorse Finance pays an annual dividend of $1.42 per share and has a dividend yield of 10.3%. Stellus Capital Investment pays an annual dividend of $1.36 per share and has a dividend yield of 10.3%. WhiteHorse Finance pays out 76.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment pays out 80.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. WhiteHorse Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation and Earnings

This table compares WhiteHorse Finance and Stellus Capital Investment’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
WhiteHorse Finance $53.85 million 5.27 $31.32 million $1.86 7.43
Stellus Capital Investment $39.49 million 5.35 $23.19 million $1.69 7.83

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

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for WhiteHorse Finance and Stellus Capital Investment, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
WhiteHorse Finance 0 2 1 0 2.33
Stellus Capital Investment 0 1 3 0 2.75

WhiteHorse Finance presently has a consensus target price of $15.00, suggesting a potential upside of 8.54%. Stellus Capital Investment has a consensus target price of $14.50, suggesting a potential upside of 9.52%. Given Stellus Capital Investment’s stronger consensus rating and higher probable upside, analysts clearly believe Stellus Capital Investment is more favorable than WhiteHorse Finance.

Institutional and Insider Ownership

9.2% of WhiteHorse Finance shares are owned by institutional investors. Comparatively, 27.1% of Stellus Capital Investment shares are owned by institutional investors. 1.4% of WhiteHorse Finance shares are owned by company insiders. Comparatively, 4.2% of Stellus Capital Investment shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares WhiteHorse Finance and Stellus Capital Investment’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
WhiteHorse Finance 64.58% 9.69% 5.54%
Stellus Capital Investment 57.94% 9.35% 4.96%

Volatility & Risk

WhiteHorse Finance has a beta of 0.71, meaning that its share price is 29% less volatile than the S&P 500. Comparatively, Stellus Capital Investment has a beta of 0.53, meaning that its share price is 47% less volatile than the S&P 500.

Summary

WhiteHorse Finance beats Stellus Capital Investment on 10 of the 16 factors compared between the two stocks.

WhiteHorse Finance Company Profile

WhiteHorse Finance, Inc. is a non-diversified, closed-end management investment company. The Company is a direct lender targeting debt investments in privately held, small-cap companies located in the United States. The Company’s investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing small-cap companies across a range of industries that typically carry a floating interest rate based on the London Interbank Offered Rate (LIBOR) and have a term of 3 to 6 years. The Company may also make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests. The Company also may receive warrants to purchase common stock in connection with its debt investments. Its investment advisor is H.I.G. WhiteHorse Advisers, LLC.

Stellus Capital Investment Company Profile

Stellus Capital Investment Corporation is a closed-end, non-diversified management investment company. The Company originates and invests primarily in private middle-market companies through first lien, second lien, unitranche and mezzanine debt financing, with corresponding equity co-investments. The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation. It invests in various sectors, such as business services, energy, general industrial, government services, healthcare, software and specialty finance. Its investment advisor is Stellus Capital Management, LLC (Stellus Capital Management). Stellus Capital Management is responsible for analyzing investment opportunities, conducting research and performing due diligence on investments, negotiating and structuring the Company’s investments, originating prospective investments, and monitoring its investments and portfolio companies on an ongoing basis.

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