Pennantpark Floating Rate Capital (PFLT) and Capitala Finance (CPTA) Critical Survey

Pennantpark Floating Rate Capital (NASDAQ:PFLT) and Capitala Finance (NASDAQ:CPTA) are both small-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their institutional ownership, analyst recommendations, valuation, profitability, risk, dividends and earnings.

Valuation & Earnings

This table compares Pennantpark Floating Rate Capital and Capitala Finance’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Pennantpark Floating Rate Capital $72.21 million 6.44 $33.49 million $1.06 11.32
Capitala Finance $47.29 million 3.04 -$13.42 million $1.00 8.92

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

Profitability

This table compares Pennantpark Floating Rate Capital and Capitala Finance’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Pennantpark Floating Rate Capital 17.80% 8.80% 4.60%
Capitala Finance -34.43% 7.86% 3.14%

Volatility & Risk

Pennantpark Floating Rate Capital has a beta of 0.72, meaning that its stock price is 28% less volatile than the S&P 500. Comparatively, Capitala Finance has a beta of 1.16, meaning that its stock price is 16% more volatile than the S&P 500.

Analyst Ratings

This is a summary of recent recommendations for Pennantpark Floating Rate Capital and Capitala Finance, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Pennantpark Floating Rate Capital 0 2 1 0 2.33
Capitala Finance 0 1 0 0 2.00

Pennantpark Floating Rate Capital currently has a consensus target price of $13.83, suggesting a potential upside of 15.28%. Capitala Finance has a consensus target price of $9.00, suggesting a potential upside of 0.90%. Given Pennantpark Floating Rate Capital’s stronger consensus rating and higher probable upside, research analysts plainly believe Pennantpark Floating Rate Capital is more favorable than Capitala Finance.

Dividends

Pennantpark Floating Rate Capital pays an annual dividend of $0.76 per share and has a dividend yield of 6.3%. Capitala Finance pays an annual dividend of $1.00 per share and has a dividend yield of 11.2%. Pennantpark Floating Rate Capital pays out 71.7% of its earnings in the form of a dividend. Capitala Finance 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.

Institutional and Insider Ownership

36.5% of Pennantpark Floating Rate Capital shares are held by institutional investors. Comparatively, 18.0% of Capitala Finance shares are held by institutional investors. 1.0% of Pennantpark Floating Rate Capital shares are held by company insiders. Comparatively, 7.3% of Capitala Finance shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Summary

Pennantpark Floating Rate Capital beats Capitala Finance on 13 of the 16 factors compared between the two stocks.

Pennantpark Floating Rate Capital Company Profile

PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. It primarily invests in the United States and to a limited extent non-U.S. companies. The fund typically invests between $2 million and $20 million. The fund also invests in equity securities, such as preferred stock, common stock, warrants or options received in connection with debt investments or through direct investments. It primarily invests between $10 million and $50 million in investments in senior secured loans and mezzanine debt. It seeks to invest in companies not rated by national rating agencies. The companies if rated would be between BB and CCC under the Standard & Poor's system. The fund invests 30% is invested in non-qualifying assets like investments in public companies whose securities are not thinly traded or do not have a market capitalization of less than $250 million, securities of middle-market companies located outside of the United States, high-yield bonds, distressed debt, private equity, securities of public companies that are not thinly traded, and investment companies as defined in the 1940 Act. Under normal conditions, the fund expects atleast 80 percent of its net assets plus any borrowings for investment purposes to be invested in Floating Rate Loans and investments with similar economic characteristics, including cash equivalents invested in money market funds. It expects to represent 65 percent of its portfolio through senior secured loans. In case of floating rate loans, it holds investments for a period of three to ten years.

Capitala Finance Company Profile

Capitala Finance Corp. is a Business Development Company specializing in traditional mezzanine, senior subordinated and unitranche debt, first-lien and second-lien loans, equity investments in sponsored and non-sponsored lower and traditional middle market companies. The fund targets companies in the business services, commercial and professional services, manufacturing, consumer and retail, energy, and health-care industries. It typically considers investments in the United States. The fund invests $5 million and $50 million per transaction in companies with greater than $4.5 million of TTM EBITDA. It may also invest in senior secured positions in "stretch" senior secured loans. The fund makes minority equity co-investments, alongside management or financial sponsors.

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