Palmer Square Capital BDC (NYSE:PSBD) and Ares Capital (NASDAQ:ARCC) Head to Head Comparison

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

Earnings & Valuation

This table compares Ares 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
Ares Capital	$1.36 billion	9.91	$1.30 billion	$1.63	11.52
Palmer Square Capital BDC	$124.39 million	2.59	-$3.17 million	($1.04)	-9.95

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ares Capital	37.30%	9.85%	4.59%
Palmer Square Capital BDC	-26.82%	11.01%	4.14%

Analyst Recommendations

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

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	3	8	0	2.73
Palmer Square Capital BDC	1	4	0	0	1.80

Ares Capital currently has a consensus target price of $20.60, suggesting a potential upside of 9.69%. Palmer Square Capital BDC has a consensus target price of $10.75, suggesting a potential upside of 3.86%. Given Ares Capital’s stronger consensus rating and higher probable upside, research analysts clearly believe Ares Capital is more favorable than Palmer Square Capital BDC.

Volatility and Risk

Ares Capital has a beta of 0.56, meaning that its stock price is 44% less volatile than the S&P 500. Comparatively, Palmer Square Capital BDC has a beta of 0.81, meaning that its stock price is 19% less volatile than the S&P 500.

Institutional & Insider Ownership

27.4% of Ares Capital shares are held by institutional investors. Comparatively, 6.5% of Palmer Square Capital BDC shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 1.1% of Palmer Square Capital BDC shares are held 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.

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.2%. Palmer Square Capital BDC pays an annual dividend of $1.44 per share and has a dividend yield of 13.9%. Ares Capital pays out 117.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Palmer Square Capital BDC pays out -138.5% of its earnings in the form of a dividend. Palmer Square Capital BDC is clearly the better dividend stock, given its higher yield and lower payout ratio.

Summary

Ares Capital beats Palmer Square Capital BDC on 11 of the 16 factors compared between the two stocks.

About Ares Capital

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

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.