Stellus Capital Investment (NYSE:SCM) vs. Carlyle Secured Lending (NASDAQ:CGBD) Critical Review

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

Valuation & Earnings

This table compares Stellus Capital Investment and Carlyle Secured Lending”s top-line 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	3.93	$45.85 million	$1.45	9.98
Carlyle Secured Lending	$232.59 million	3.00	$88.98 million	$1.20	11.42

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

Analyst Ratings

This is a summary of current ratings and price targets for Stellus Capital Investment and Carlyle Secured Lending, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Stellus Capital Investment	0	1	0	0	2.00
Carlyle Secured Lending	2	3	1	0	1.83

Stellus Capital Investment currently has a consensus target price of $13.00, suggesting a potential downside of 10.16%. Carlyle Secured Lending has a consensus target price of $15.10, suggesting a potential upside of 10.22%. Given Carlyle Secured Lending’s higher possible upside, analysts clearly believe Carlyle Secured Lending is more favorable than Stellus Capital Investment.

Insider and Institutional Ownership

13.2% of Stellus Capital Investment shares are held by institutional investors. Comparatively, 24.5% of Carlyle Secured Lending shares are held by institutional investors. 4.0% of Stellus Capital Investment shares are held by insiders. Comparatively, 0.6% of Carlyle Secured Lending shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Profitability

This table compares Stellus Capital Investment and Carlyle Secured Lending’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%
Carlyle Secured Lending	29.71%	9.85%	4.59%

Dividends

Stellus Capital Investment pays an annual dividend of $1.60 per share and has a dividend yield of 11.1%. Carlyle Secured Lending pays an annual dividend of $1.60 per share and has a dividend yield of 11.7%. 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. Carlyle Secured Lending pays out 133.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Volatility & Risk

Stellus Capital Investment has a beta of 0.86, meaning that its share price is 14% less volatile than the S&P 500. Comparatively, Carlyle Secured Lending has a beta of 0.88, meaning that its share price is 12% less volatile than the S&P 500.

Summary

Carlyle Secured Lending beats Stellus Capital Investment on 9 of the 16 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 Carlyle Secured Lending

Carlyle Secured Lending, Inc. is business development company specializing in first lien debt, senior secured loans, second lien senior secured loan unsecured debt, mezzanine debt and investments in equities. It specializes in directly investing. It specializes in middle market. It targets healthcare and pharmaceutical, aerospace and defense, high tech industries, business services, software, beverage food and tobacco, hotel gamming and leisure, banking finance insurance and in real estate sector. The fund seeks to invest across United States of America, Luxembourg, Cayman Islands, Cyprus, and United Kingdom. It invests in companies with EBITDA between $25 million and $100 million.