Critical Comparison: Medallion Financial (NASDAQ:MFIN) versus Gladstone Capital (NASDAQ:GLAD)

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

Institutional and Insider Ownership

40.6% of Medallion Financial shares are held by institutional investors. Comparatively, 10.7% of Gladstone Capital shares are held by institutional investors. 24.6% of Medallion Financial shares are held by insiders. Comparatively, 3.8% of Gladstone Capital shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Valuation and Earnings

This table compares Medallion Financial and Gladstone Capital”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Medallion Financial	$302.03 million	0.79	$35.88 million	$1.71	6.01
Gladstone Capital	$37.39 million	11.20	$58.11 million	$1.59	11.66

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

Dividends

Medallion Financial pays an annual dividend of $0.48 per share and has a dividend yield of 4.7%. Gladstone Capital pays an annual dividend of $1.80 per share and has a dividend yield of 9.7%. Medallion Financial pays out 28.1% of its earnings in the form of a dividend. Gladstone Capital pays out 113.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Capital has increased its dividend for 4 consecutive years. Gladstone Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk & Volatility

Medallion Financial has a beta of 0.77, meaning that its share price is 23% less volatile than the S&P 500. Comparatively, Gladstone Capital has a beta of 0.94, meaning that its share price is 6% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Medallion Financial and Gladstone Capital, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Medallion Financial	0	2	1	0	2.33
Gladstone Capital	0	4	2	0	2.33

Medallion Financial currently has a consensus target price of $12.00, suggesting a potential upside of 16.85%. Gladstone Capital has a consensus target price of $21.67, suggesting a potential upside of 16.86%. Given Gladstone Capital’s higher possible upside, analysts clearly believe Gladstone Capital is more favorable than Medallion Financial.

Profitability

This table compares Medallion Financial and Gladstone Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Medallion Financial	12.12%	9.28%	1.55%
Gladstone Capital	39.42%	9.56%	5.40%

Summary

Gladstone Capital beats Medallion Financial on 11 of the 16 factors compared between the two stocks.

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.

About Gladstone Capital

Gladstone Capital Corporation is a business development company specializing in lower middle market, growth capital, add on acquisitions, change of control, buy & build strategies, debt refinancing, debt investments in senior term loans, revolving loans, secured first and second lien term loans, senior subordinated loans, unitranche loans, junior subordinated loans, and mezzanine loans and equity investments in the form of common stock, preferred stock, limited liability company interests, or warrants. It operates as a business development company. The fund also makes private equity investments in acquisitions, buyouts and recapitalizations, and refinancing existing debts. It targets small and medium-sized companies in United States. It is industry agnostic and seeks to invest in companies engaged in the business services, light and specialty manufacturing, niche industrial products and services, specialty consumer products and services, energy services, transportation and logistics, healthcare and education services, specialty chemicals, media and communications and aerospace and defense. The fund seeks to invest between $7 million and $30 million in companies that have between $20 million and $150 million in sales and EBITDA between $3 million and $25 million. It prefers to acquire minority stakes. It seeks to exit its investments through strategic acquisitions by other industry participants or financial buyers, initial public offerings of common stock, or other capital market transactions.