Contrasting Bain Capital Specialty Finance (NYSE:BCSF) & Stellus Capital Investment (NYSE:SCM)

Bain Capital Specialty Finance (NYSE:BCSF) and Stellus Capital Investment (NYSE:SCM) are both small-cap finance companies, but which is the better investment? We will contrast the two businesses based on the strength of their valuation, dividends, institutional ownership, risk, profitability, analyst recommendations and earnings.

Valuation & Earnings

This table compares Bain Capital Specialty Finance and Stellus Capital Investment”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Bain Capital Specialty Finance	$273.24 million	3.12	$98.76 million	$1.53	8.58
Stellus Capital Investment	$102.14 million	2.71	$27.05 million	$0.94	10.19

Bain Capital Specialty Finance has higher revenue and earnings than Stellus Capital Investment. Bain Capital Specialty Finance 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.

Analyst Ratings

This is a summary of recent ratings and target prices for Bain Capital Specialty Finance and Stellus Capital Investment, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Bain Capital Specialty Finance	0	2	1	0	2.33
Stellus Capital Investment	1	2	0	0	1.67

Bain Capital Specialty Finance presently has a consensus price target of $14.00, suggesting a potential upside of 6.63%. Stellus Capital Investment has a consensus price target of $9.00, suggesting a potential downside of 6.01%. Given Bain Capital Specialty Finance’s stronger consensus rating and higher possible upside, research analysts plainly believe Bain Capital Specialty Finance is more favorable than Stellus Capital Investment.

Risk and Volatility

Bain Capital Specialty Finance has a beta of 0.57, meaning that its stock price is 43% less volatile than the S&P 500. Comparatively, Stellus Capital Investment has a beta of 0.67, meaning that its stock price is 33% less volatile than the S&P 500.

Dividends

Bain Capital Specialty Finance pays an annual dividend of $1.68 per share and has a dividend yield of 12.8%. Stellus Capital Investment pays an annual dividend of $1.36 per share and has a dividend yield of 14.2%. Bain Capital Specialty Finance pays out 109.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Stellus Capital Investment pays out 144.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Bain Capital Specialty Finance has raised its dividend for 4 consecutive years.

Profitability

This table compares Bain Capital Specialty Finance and Stellus Capital Investment’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Bain Capital Specialty Finance	36.14%	10.74%	4.51%
Stellus Capital Investment	26.48%	10.28%	3.74%

Insider & Institutional Ownership

13.2% of Stellus Capital Investment shares are held by institutional investors. 0.6% of Bain Capital Specialty Finance shares are held by insiders. Comparatively, 4.0% of Stellus Capital Investment shares are held by 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.

Summary

Bain Capital Specialty Finance beats Stellus Capital Investment on 12 of the 17 factors compared between the two stocks.

About Bain Capital Specialty Finance

Bain Capital Specialty Finance, Inc. is business development company specializing in direct loans to middle-market companies. The fund seeks to invest in senior investments with a first or second lien on collateral, senior first lien, stretch senior, senior second lien, unitranche, mezzanine debt, junior securities, other junior investments, and secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. It typically invests in companies with EBITDA between $10 million and $150 million.

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.