Head-To-Head Review: GCM Grosvenor (NASDAQ:GCMG) & Prospect Capital (NASDAQ:PSEC)

GCM Grosvenor (NASDAQ:GCMG) and Prospect Capital (NASDAQ:PSEC) are both finance companies, but which is the better business? We will contrast the two businesses based on the strength of their valuation, dividends, earnings, analyst recommendations, profitability, institutional ownership and risk.

Analyst Ratings

This is a breakdown of recent ratings and target prices for GCM Grosvenor and Prospect Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
GCM Grosvenor	0	1	2	0	2.67
Prospect Capital	2	0	0	0	1.00

GCM Grosvenor currently has a consensus price target of $15.50, suggesting a potential upside of 45.54%. Prospect Capital has a consensus price target of $2.00, suggesting a potential downside of 8.26%. Given GCM Grosvenor’s stronger consensus rating and higher probable upside, analysts clearly believe GCM Grosvenor is more favorable than Prospect Capital.

Institutional & Insider Ownership

100.0% of GCM Grosvenor shares are owned by institutional investors. Comparatively, 9.1% of Prospect Capital shares are owned by institutional investors. 70.7% of GCM Grosvenor shares are owned by company insiders. Comparatively, 0.0% of Prospect Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Earnings and Valuation

This table compares GCM Grosvenor and Prospect Capital”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
GCM Grosvenor	$557.57 million	3.86	$45.37 million	$0.45	23.67
Prospect Capital	$719.44 million	1.52	-$469.92 million	($0.37)	-5.89

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

Profitability

This table compares GCM Grosvenor and Prospect Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
GCM Grosvenor	9.05%	222.78%	18.36%
Prospect Capital	-10.42%	12.03%	5.43%

Dividends

GCM Grosvenor pays an annual dividend of $0.48 per share and has a dividend yield of 4.5%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 24.8%. GCM Grosvenor pays out 106.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Prospect Capital pays out -145.9% of its earnings in the form of a dividend. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

GCM Grosvenor has a beta of 0.87, indicating that its share price is 13% less volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.82, indicating that its share price is 18% less volatile than the S&P 500.

Summary

GCM Grosvenor beats Prospect Capital on 13 of the 16 factors compared between the two stocks.

About GCM Grosvenor

GCM Grosvenor Inc. is global alternative asset management solutions provider. The firm primarily provides its services to pooled investment vehicles. It also provides its services to investment companies, high net worth individuals, pension and profit sharing plans and state or municipal government entities. The firm invests in equity and alternative investment markets of the United States and internationally. The firm invests in multi-strategy, credit-focused, equity-focused, macro-focused, commodity-focused, and other specialty portfolios. It focuses in hedge fund asset classes, private equity, real estate, and/or infrastructure, credit and absolute return strategies. It also focuses in primary fund investments, secondary fund investments, and co-investments with a focus on buyout, distressed debt, mezzanine, venture capital/growth equity investments. The firm seeks to do seed investments in small, emerging, and diverse private equity firms. The firm seeks to make regionally-focused investments in middle-market buyout. It prefers to invest in aerospace and defense, advanced electronics, information technology, biosciences, and advanced materials. It focuses on Ohio and the Midwest region. The firm employs fundamental and quantitative analysis. GCM Grosvenor Inc. was founded in 1971 and is based in Chicago, Illinois with additional offices in North America, Asia, Australia and Europe.

About Prospect Capital

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, market place lending and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, senior and secured term loans, unitranche debt, first-lien and second lien, private debt, private equity, mezzanine debt, and equity investments in private and microcap public businesses. It focuses on both primary origination and secondary loans/portfolios and invests in situations like debt financings for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, real estate financings/investments. It also focuses on investing in small-sized and medium-sized private companies rather than large public companies. The fund typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. It invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada. The fund seeks to invest between $10 million to $500 million per transaction in companies with EBITDA between $5 million and $150 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1000 million. It fund also co-invests for larger deals. The fund seeks control acquisitions by providing multiple levels of the capital structure. The fund focuses on sole, agented, club, or syndicated deals.