Analyzing Gladstone Investment (NASDAQ:GAIN) and WhiteHorse Finance (NASDAQ:WHF)

Gladstone Investment (NASDAQ:GAIN) and WhiteHorse Finance (NASDAQ:WHF) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their dividends, institutional ownership, profitability, analyst recommendations, earnings, valuation and risk.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Gladstone Investment	83.78%	7.33%	3.53%
WhiteHorse Finance	4.36%	10.72%	4.51%

Analyst Ratings

This is a summary of recent ratings for Gladstone Investment and WhiteHorse Finance, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Gladstone Investment	0	4	1	0	2.20
WhiteHorse Finance	2	3	0	0	1.60

WhiteHorse Finance has a consensus price target of $7.75, indicating a potential upside of 11.67%. Given WhiteHorse Finance’s higher probable upside, analysts clearly believe WhiteHorse Finance is more favorable than Gladstone Investment.

Dividends

Gladstone Investment pays an annual dividend of $0.96 per share and has a dividend yield of 6.9%. WhiteHorse Finance pays an annual dividend of $1.00 per share and has a dividend yield of 14.4%. Gladstone Investment pays out 38.4% of its earnings in the form of a dividend. WhiteHorse Finance pays out 232.6% 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 has increased its dividend for 3 consecutive years. WhiteHorse Finance is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility & Risk

Gladstone Investment has a beta of 0.91, indicating that its stock price is 9% less volatile than the S&P 500. Comparatively, WhiteHorse Finance has a beta of 0.79, indicating that its stock price is 21% less volatile than the S&P 500.

Valuation & Earnings

This table compares Gladstone Investment and WhiteHorse Finance”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Gladstone Investment	$85.11 million	6.51	$65.32 million	$2.50	5.59
WhiteHorse Finance	$9.51 million	16.96	$10.85 million	$0.43	16.14

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

Insider and Institutional Ownership

11.9% of Gladstone Investment shares are held by institutional investors. Comparatively, 13.2% of WhiteHorse Finance shares are held by institutional investors. 2.4% of Gladstone Investment shares are held by company insiders. Comparatively, 2.5% of WhiteHorse Finance shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Summary

WhiteHorse Finance beats Gladstone Investment on 9 of the 17 factors compared between the two stocks.

About Gladstone Investment

Gladstone Investment Corporation is business development company, specializes in lower middle market, mature stage, buyouts; refinancing existing debt; senior debt securities such as senior loans, senior term loans, lines of credit, and senior notes; senior subordinated debt securities such as senior subordinated loans and senior subordinated notes; junior subordinated debt securities such as subordinated notes and mezzanine loans; limited liability company interests, and warrants or options. The fund does not invest in start-ups. The fund seeks to invest in manufacturing, consumer products and business/consumer services sector. It seeks to invest in small and mid-sized companies based in the United States. The fund prefers to make debt investments between $5 million and $30 million and equity investments between $10 million and $40 million in companies. The fund seeks to invest in companies with revenue between $20 million and $100 million. The fund invests in companies with EBITDA from $3 million to $20 million. It seeks minority equity ownership and prefers to hold a board seat in its portfolio companies. It also prefers to take majority stake in its portfolio companies. The fund typically holds the investments for seven years and exits via sale or recapitalization, initial public offering, or sale to third party.

About WhiteHorse Finance

WhiteHorse Finance, Inc. is business development company, non-diversified, closed end management company specializing in originating senior secured loans, lower middle market, growth capital industries. It invests in broadline retail, office services and supplies, building products, health care services, health care supplies, research and consulting services, application software, home furnishings, specialized consumer services, data processing and outsourced services, leisure facilities, cable, and satellite. It prefers to invest in United States. It typically invests between $5 million to $25 million in companies having enterprise value of between $50 million and $350 million.