Head-To-Head Comparison: New Mountain Finance (NASDAQ:NMFC) and Gladstone Capital (NASDAQ:GLAD)

New Mountain Finance (NASDAQ:NMFC) and Gladstone Capital (NASDAQ:GLAD) are both small-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their institutional ownership, valuation, risk, profitability, dividends, earnings and analyst recommendations.

Analyst Recommendations

This is a breakdown of recent ratings and price targets for New Mountain Finance and Gladstone Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
New Mountain Finance	2	5	0	0	1.71
Gladstone Capital	0	4	2	0	2.33

New Mountain Finance currently has a consensus price target of $9.25, suggesting a potential upside of 16.35%. Gladstone Capital has a consensus price target of $21.67, suggesting a potential upside of 11.74%. Given New Mountain Finance’s higher probable upside, equities research analysts clearly believe New Mountain Finance is more favorable than Gladstone Capital.

Dividends

New Mountain Finance pays an annual dividend of $1.28 per share and has a dividend yield of 16.1%. Gladstone Capital pays an annual dividend of $1.80 per share and has a dividend yield of 9.3%. New Mountain Finance pays out -220.7% of its earnings in the form of a dividend. Gladstone Capital pays out 98.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Capital has raised its dividend for 4 consecutive years. New Mountain Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares New Mountain Finance and Gladstone Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
New Mountain Finance	-18.65%	11.14%	4.63%
Gladstone Capital	45.15%	9.79%	5.31%

Valuation & Earnings

This table compares New Mountain Finance and Gladstone Capital”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
New Mountain Finance	$327.08 million	2.30	$16.49 million	($0.58)	-13.71
Gladstone Capital	$89.12 million	4.91	$58.11 million	$1.83	10.60

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

Institutional & Insider Ownership

32.1% of New Mountain Finance shares are owned by institutional investors. Comparatively, 10.7% of Gladstone Capital shares are owned by institutional investors. 14.9% of New Mountain Finance shares are owned by company insiders. Comparatively, 3.8% of Gladstone Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Volatility & Risk

New Mountain Finance has a beta of 0.54, suggesting that its stock price is 46% less volatile than the S&P 500. Comparatively, Gladstone Capital has a beta of 0.92, suggesting that its stock price is 8% less volatile than the S&P 500.

Summary

Gladstone Capital beats New Mountain Finance on 10 of the 17 factors compared between the two stocks.

About New Mountain Finance

New Mountain Finance Corporation (Nasdaq: NMFC), a business development company is a private equity / buyouts and loan fund specializes in directly investing and lending to middle market companies in defensive growth industries. The fund prefers investing in buyout and middle market companies. It also makes investments in debt securities at all levels of the capital structure including first and second lien debt, unsecured notes, and mezzanine securities. In some cases, its investments may also include equity interests. It targets energy, engineering and consulting services, specialty chemicals and materials, trading companies and distributors, commercial printing, diversified support services, education services, environmental and facilities services, office services and supplies, media, distributors, health care services, health care facilities, application software, business services, systems software, federal services, distribution and logistics, interactive home entertainment, telecommunication services, hydroelectric power generation, electric power generation by fossil fuels, electric power generation by nuclear fuels, health care technology, and security and alarm services. The fund seeks to invest in United States of America. It seeks to invest between $10 million and $125 million per transaction. The firm invests through both primary originations and open-market secondary purchases. It invests in companies with EBITDA between $10 million and $200 million. The fund seeks a majority stake in its portfolio companies.

About Gladstone Capital

Gladstone Capital Corporation is a business development company specializing in lower middle market, growth capital, add on acquisitions, change of control, buy & build strategies, debt refinancing, debt investments in senior term loans, revolving loans, secured first and second lien term loans, senior subordinated loans, unitranche loans, junior subordinated loans, and mezzanine loans and equity investments in the form of common stock, preferred stock, limited liability company interests, or warrants. It operates as a business development company. The fund also makes private equity investments in acquisitions, buyouts and recapitalizations, and refinancing existing debts. It targets small and medium-sized companies in United States. It is industry agnostic and seeks to invest in companies engaged in the business services, light and specialty manufacturing, niche industrial products and services, specialty consumer products and services, energy services, transportation and logistics, healthcare and education services, specialty chemicals, media and communications and aerospace and defense. The fund seeks to invest between $7 million and $30 million in companies that have between $20 million and $150 million in sales and EBITDA between $3 million and $25 million. It prefers to acquire minority stakes. It seeks to exit its investments through strategic acquisitions by other industry participants or financial buyers, initial public offerings of common stock, or other capital market transactions.