Stellus Capital Investment (NYSE:SCM) & Chicago Atlantic BDC (NASDAQ:LIEN) Critical Review

Stellus Capital Investment (NYSE:SCM) and Chicago Atlantic BDC (NASDAQ:LIEN) are both small-cap finance companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, institutional ownership, valuation, profitability, analyst recommendations, earnings and risk.

Analyst Ratings

This is a summary of recent ratings and recommmendations for Stellus Capital Investment and Chicago Atlantic BDC, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Stellus Capital Investment	0	1	0	0	2.00
Chicago Atlantic BDC	0	2	0	0	2.00

Stellus Capital Investment currently has a consensus target price of $13.00, suggesting a potential downside of 10.38%. Given Stellus Capital Investment’s higher probable upside, research analysts plainly believe Stellus Capital Investment is more favorable than Chicago Atlantic BDC.

Institutional and Insider Ownership

13.2% of Stellus Capital Investment shares are owned by institutional investors. Comparatively, 4.4% of Chicago Atlantic BDC shares are owned by institutional investors. 4.0% of Stellus Capital Investment shares are owned by company insiders. Comparatively, 16.9% of Chicago Atlantic BDC shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Valuation and Earnings

This table compares Stellus Capital Investment and Chicago Atlantic BDC”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Stellus Capital Investment	$104.74 million	3.94	$45.85 million	$1.45	10.00
Chicago Atlantic BDC	$21.67 million	11.45	$9.62 million	$0.37	29.38

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

Risk and Volatility

Stellus Capital Investment has a beta of 0.86, meaning that its stock price is 14% less volatile than the S&P 500. Comparatively, Chicago Atlantic BDC has a beta of 0.27, meaning that its stock price is 73% less volatile than the S&P 500.

Dividends

Stellus Capital Investment pays an annual dividend of $1.60 per share and has a dividend yield of 11.0%. Chicago Atlantic BDC pays an annual dividend of $1.36 per share and has a dividend yield of 12.5%. Stellus Capital Investment pays out 110.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Chicago Atlantic BDC pays out 367.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Profitability

This table compares Stellus Capital Investment and Chicago Atlantic BDC’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Stellus Capital Investment	38.24%	11.06%	4.12%
Chicago Atlantic BDC	21.50%	3.25%	3.07%

Summary

Stellus Capital Investment beats Chicago Atlantic BDC on 10 of the 14 factors compared between the two stocks.

About Stellus Capital Investment

Stellus Capital Investment Corporation is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund prefers to invest in US and Canada. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.

About Chicago Atlantic BDC

Chicago Atlantic BDC Inc. is a specialty finance company which has elected to be regulated as a business development company. Its investment objective is to maximize risk-adjusted returns on equity for its stockholders by investing primarily in direct loans to privately held middle-market companies, with a primary focus on cannabis companies. Chicago Atlantic BDC Inc., formerly known as CHICAGO ATLNTIC, is based in NEW YORK.