Reviewing Runway Growth Finance (NASDAQ:RWAY) & Gladstone Capital (NASDAQ:GLAD)

Gladstone Capital (NASDAQ:GLAD) and Runway Growth Finance (NASDAQ:RWAY) are both small-cap finance companies, but which is the superior investment? We will compare the two companies based on the strength of their dividends, profitability, analyst recommendations, institutional ownership, earnings, risk and valuation.

Insider & Institutional Ownership

10.7% of Gladstone Capital shares are owned by institutional investors. Comparatively, 64.6% of Runway Growth Finance shares are owned by institutional investors. 3.8% of Gladstone Capital shares are owned by company insiders. Comparatively, 1.0% of Runway Growth Finance shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Profitability

This table compares Gladstone Capital and Runway Growth Finance’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Gladstone Capital	39.42%	9.56%	5.40%
Runway Growth Finance	38.92%	11.94%	5.80%

Dividends

Gladstone Capital pays an annual dividend of $1.80 per share and has a dividend yield of 9.8%. Runway Growth Finance pays an annual dividend of $1.32 per share and has a dividend yield of 16.0%. 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. Runway Growth Finance pays out 89.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Capital has increased its dividend for 4 consecutive years. Runway Growth Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

Gladstone Capital has a beta of 0.94, suggesting that its stock price is 6% less volatile than the S&P 500. Comparatively, Runway Growth Finance has a beta of 0.67, suggesting that its stock price is 33% less volatile than the S&P 500.

Valuation and Earnings

This table compares Gladstone Capital and Runway Growth Finance”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Gladstone Capital	$89.12 million	4.66	$58.11 million	$1.59	11.57
Runway Growth Finance	$144.63 million	2.06	$73.61 million	$1.47	5.61

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

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Gladstone Capital and Runway Growth Finance, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Gladstone Capital	0	4	2	0	2.33
Runway Growth Finance	0	4	3	0	2.43

Gladstone Capital currently has a consensus target price of $21.67, suggesting a potential upside of 17.82%. Runway Growth Finance has a consensus target price of $11.10, suggesting a potential upside of 34.55%. Given Runway Growth Finance’s stronger consensus rating and higher possible upside, analysts clearly believe Runway Growth Finance is more favorable than Gladstone Capital.

Summary

Runway Growth Finance beats Gladstone Capital on 10 of the 17 factors compared between the two stocks.

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.

About Runway Growth Finance

Runway Growth Finance Corp. is a business development company specializing investments in senior-secured loans to late stage and growth companies. It prefers to make investments in companies engaged in the technology, life sciences, healthcare and information services, business services and select consumer services and products sectors. It prefers to investments in companies engaged in electronic equipment and instruments, systems software, hardware, storage and peripherals and specialized consumer services, application software, healthcare technology, internet software and services, data processing and outsourced services, internet retail, human resources and employment services, biotechnology, healthcare equipment and education services. It invests in senior secured loans between $10 million and $75 million.