Critical Review: SLR Investment (NASDAQ:SLRC) vs. Saratoga Investment (NYSE:SAR)

Saratoga Investment (NYSE:SAR) and SLR Investment (NASDAQ:SLRC) are both small-cap finance companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, institutional ownership, profitability, valuation, dividends, analyst recommendations and risk.

Analyst Ratings

This is a breakdown of current recommendations for Saratoga Investment and SLR Investment, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Saratoga Investment	1	4	0	0	1.80
SLR Investment	2	3	3	0	2.12

Saratoga Investment presently has a consensus target price of $19.67, suggesting a potential upside of 68.89%. SLR Investment has a consensus target price of $13.92, suggesting a potential upside of 19.87%. Given Saratoga Investment’s higher probable upside, analysts clearly believe Saratoga Investment is more favorable than SLR Investment.

Insider & Institutional Ownership

19.1% of Saratoga Investment shares are owned by institutional investors. Comparatively, 35.3% of SLR Investment shares are owned by institutional investors. 10.6% of Saratoga Investment shares are owned by insiders. Comparatively, 9.1% of SLR Investment shares are owned by 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.

Risk and Volatility

Saratoga Investment has a beta of 0.62, indicating that its stock price is 38% less volatile than the S&P 500. Comparatively, SLR Investment has a beta of 0.69, indicating that its stock price is 31% less volatile than the S&P 500.

Valuation and Earnings

This table compares Saratoga Investment and SLR Investment”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Saratoga Investment	$125.71 million	1.44	$36.60 million	($0.25)	-46.58
SLR Investment	$218.54 million	2.85	$92.54 million	$1.06	10.95

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

Profitability

This table compares Saratoga Investment and SLR Investment’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Saratoga Investment	-3.35%	8.66%	2.78%
SLR Investment	28.75%	7.61%	2.93%

Dividends

Saratoga Investment pays an annual dividend of $3.00 per share and has a dividend yield of 25.8%. SLR Investment pays an annual dividend of $1.24 per share and has a dividend yield of 10.7%. Saratoga Investment pays out -1,200.0% of its earnings in the form of a dividend. SLR Investment pays out 117.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Saratoga Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

SLR Investment beats Saratoga Investment on 11 of the 16 factors compared between the two stocks.

About Saratoga Investment

Saratoga Investment Corp. is a business development company (BDC) that provides financing to lower middle-market businesses in the United States. It is externally managed by Saratoga Investment Advisors LLC. The company invests primarily in debt securities, including senior and subordinated loans, and may also make equity investments. Its financing can support business growth, acquisitions, and other corporate needs. Saratoga Investment was formed in 2007 and is led by Chairman and Chief Executive Officer Christian L. Oberbeck.

About SLR Investment

SLR Investment Corp. is a business development company that provides financing to middle-market businesses. It primarily invests in privately held companies through loans and other debt instruments, with a focus on senior secured lending. The company’s financing may support business growth, acquisitions, refinancings, and recapitalizations. Its investments include senior secured and unitranche loans, as well as, in some cases, subordinated debt and equity interests. SLR Investment Corp. is externally managed by SLR Capital Partners and primarily serves businesses in the United States.