Reviewing OFS Capital (NASDAQ:OFS) and Carlyle Secured Lending (NASDAQ:CGBD)

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

Profitability

This table compares Carlyle Secured Lending and OFS Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Carlyle Secured Lending	27.38%	8.56%	3.90%
OFS Capital	-81.33%	8.75%	3.23%

Analyst Recommendations

This is a breakdown of current recommendations for Carlyle Secured Lending and OFS Capital, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Carlyle Secured Lending	0	5	3	0	2.38
OFS Capital	1	1	0	0	1.50

Carlyle Secured Lending presently has a consensus price target of $13.20, suggesting a potential upside of 20.66%. OFS Capital has a consensus price target of $7.00, suggesting a potential upside of 97.18%. Given OFS Capital’s higher probable upside, analysts plainly believe OFS Capital is more favorable than Carlyle Secured Lending.

Valuation & Earnings

This table compares Carlyle Secured Lending and OFS Capital”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Carlyle Secured Lending	$255.57 million	3.03	$69.97 million	$1.02	10.73
OFS Capital	-$28.32 million	-1.68	-$33.09 million	($2.47)	-1.44

Carlyle Secured Lending has higher revenue and earnings than OFS Capital. OFS Capital 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.

Institutional and Insider Ownership

24.5% of Carlyle Secured Lending shares are owned by institutional investors. Comparatively, 10.8% of OFS Capital shares are owned by institutional investors. 0.6% of Carlyle Secured Lending shares are owned by insiders. Comparatively, 0.5% of OFS Capital shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Volatility & Risk

Carlyle Secured Lending has a beta of 0.7, indicating that its stock price is 30% less volatile than the S&P 500. Comparatively, OFS Capital has a beta of 0.86, indicating that its stock price is 14% less volatile than the S&P 500.

Dividends

Carlyle Secured Lending pays an annual dividend of $1.60 per share and has a dividend yield of 14.6%. OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 19.2%. Carlyle Secured Lending pays out 156.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. OFS Capital pays out -27.5% of its earnings in the form of a dividend. OFS Capital has raised its dividend for 3 consecutive years. OFS Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Carlyle Secured Lending beats OFS Capital on 11 of the 17 factors compared between the two stocks.

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.

About OFS Capital

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, ownership transition, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, construction & building, durable goods, capital equipment, automotive, food and beverage, healthcare & pharmaceutical, specialty chemicals, transportation cargo and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $3 million and $35 million, revenues between $15 million and $300 million, annual EBITDA between $5 million and $50 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.