Critical Comparison: Stellus Capital Investment (NYSE:SCM) vs. Medallion Financial (NASDAQ:MFIN)

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

Valuation and Earnings

This table compares Stellus Capital Investment and Medallion Financial”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	3.85	$45.85 million	$1.45	9.79
Medallion Financial	$302.03 million	0.82	$35.88 million	$1.76	6.07

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

Institutional and Insider Ownership

13.2% of Stellus Capital Investment shares are held by institutional investors. Comparatively, 40.6% of Medallion Financial shares are held by institutional investors. 4.0% of Stellus Capital Investment shares are held by company insiders. Comparatively, 24.6% of Medallion Financial shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Volatility & Risk

Stellus Capital Investment has a beta of 0.87, suggesting that its stock price is 13% less volatile than the S&P 500. Comparatively, Medallion Financial has a beta of 1.42, suggesting that its stock price is 42% more 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 11.3%. Medallion Financial pays an annual dividend of $0.48 per share and has a dividend yield of 4.5%. 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. Medallion Financial pays out 27.3% of its earnings in the form of a dividend.

Profitability

This table compares Stellus Capital Investment and Medallion Financial’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%
Medallion Financial	12.62%	9.04%	1.46%

Analyst Ratings

This is a breakdown of recent ratings for Stellus Capital Investment and Medallion Financial, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Stellus Capital Investment	0	1	0	0	2.00
Medallion Financial	0	0	1	0	3.00

Stellus Capital Investment currently has a consensus price target of $13.00, suggesting a potential downside of 8.45%. Medallion Financial has a consensus price target of $12.00, suggesting a potential upside of 12.36%. Given Medallion Financial’s stronger consensus rating and higher possible upside, analysts plainly believe Medallion Financial is more favorable than Stellus Capital Investment.

Summary

Medallion Financial 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 Medallion Financial

Medallion Financial Corp., together with its subsidiaries, operates as a specialty finance company in the United States. It operates in four segments: Recreation Lending, Home Improvement Lending, Commercial Lending, and Taxi Medallion Lending. The company offers loans that finance consumer purchases of recreational vehicles, boats, and other consumer recreational equipment; consumer financing for window, siding, and roof replacement, swimming pool installations, and other home improvement projects; senior and subordinated loans for the purchase of equipment and related assets necessary to open a new business, or purchase or improvement of an existing business; and taxi medallion loans to individuals and small to mid-size businesses. It also provides debt, mezzanine, and equity investment capital to companies in various commercial industries; and raises deposits and conducts other banking activities. Medallion Financial Corp. was incorporated in 1995 and is headquartered in New York City, New York.