Reviewing OFS Capital (NASDAQ:OFS) and Palmer Square Capital BDC (NYSE:PSBD)

OFS Capital (NASDAQ:OFS) and Palmer Square Capital BDC (NYSE:PSBD) are both small-cap finance companies, but which is the better investment? We will contrast the two companies based on the strength of their institutional ownership, valuation, analyst recommendations, profitability, earnings, dividends and risk.

Insider & Institutional Ownership

10.8% of OFS Capital shares are owned by institutional investors. Comparatively, 6.5% of Palmer Square Capital BDC shares are owned by institutional investors. 0.5% of OFS Capital shares are owned by insiders. Comparatively, 1.1% of Palmer Square Capital BDC shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Profitability

This table compares OFS Capital and Palmer Square Capital BDC’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
OFS Capital	-81.33%	8.75%	3.23%
Palmer Square Capital BDC	-2.55%	10.82%	4.13%

Risk & Volatility

OFS Capital has a beta of 0.86, suggesting that its share price is 14% less volatile than the S&P 500. Comparatively, Palmer Square Capital BDC has a beta of 0.7, suggesting that its share price is 30% less volatile than the S&P 500.

Valuation and Earnings

This table compares OFS Capital and Palmer Square Capital BDC”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
OFS Capital	$40.69 million	1.25	-$33.09 million	($2.47)	-1.53
Palmer Square Capital BDC	$124.39 million	2.66	-$3.17 million	($0.11)	-96.43

Palmer Square Capital BDC has higher revenue and earnings than OFS Capital. Palmer Square Capital BDC 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 Recommendations

This is a summary of current ratings for OFS Capital and Palmer Square Capital BDC, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
OFS Capital	1	1	0	0	1.50
Palmer Square Capital BDC	0	4	0	0	2.00

OFS Capital currently has a consensus price target of $7.00, suggesting a potential upside of 84.70%. Palmer Square Capital BDC has a consensus price target of $11.75, suggesting a potential upside of 10.78%. Given OFS Capital’s higher probable upside, equities research analysts clearly believe OFS Capital is more favorable than Palmer Square Capital BDC.

Dividends

OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 17.9%. Palmer Square Capital BDC pays an annual dividend of $1.44 per share and has a dividend yield of 13.6%. OFS Capital pays out -27.5% of its earnings in the form of a dividend. Palmer Square Capital BDC pays out -1,309.1% 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. 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.

Summary

Palmer Square Capital BDC beats OFS Capital on 10 of the 16 factors compared between the two stocks.

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 Palmer Square Capital BDC

Palmer Square Capital BDC Inc. is an externally managed, non-diversified closed-end management investment company which primarily lends to and invests in corporate debt securities, including small to large private U.S. companies and has elected to be regulated as a business development company. Palmer Square Capital BDC Inc. is based in MISSION WOODS, Kan.