Saratoga Investment (NYSE:SAR – Get Free Report) and Runway Growth Finance (NASDAQ:RWAY – Get Free Report) are both small-cap finance companies, but which is the superior stock? We will compare the two companies based on the strength of their dividends, analyst recommendations, risk, profitability, institutional ownership, valuation and earnings.
Risk and Volatility
Saratoga Investment has a beta of 0.55, indicating that its share price is 45% less volatile than the S&P 500. Comparatively, Runway Growth Finance has a beta of 0.7, indicating that its share price is 30% less volatile than the S&P 500.
Analyst Ratings
This is a summary of recent ratings for Saratoga Investment and Runway Growth Finance, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Saratoga Investment | 0 | 6 | 0 | 0 | 2.00 |
| Runway Growth Finance | 0 | 4 | 3 | 0 | 2.43 |
Insider & Institutional Ownership
19.1% of Saratoga Investment shares are held by institutional investors. Comparatively, 64.6% of Runway Growth Finance shares are held by institutional investors. 10.0% of Saratoga Investment shares are held by company insiders. Comparatively, 1.0% of Runway Growth Finance 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.
Profitability
This table compares Saratoga Investment and Runway Growth Finance’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Saratoga Investment | 30.61% | 9.19% | 3.09% |
| Runway Growth Finance | 38.92% | 11.94% | 5.80% |
Valuation and Earnings
This table compares Saratoga Investment and Runway Growth Finance”s top-line revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Saratoga Investment | $148.85 million | 2.48 | $28.09 million | $2.44 | 9.35 |
| Runway Growth Finance | $144.63 million | 1.83 | $73.61 million | $1.47 | 4.99 |
Runway Growth Finance has lower revenue, but higher earnings than Saratoga Investment. Runway Growth Finance is trading at a lower price-to-earnings ratio than Saratoga Investment, indicating that it is currently the more affordable of the two stocks.
Dividends
Saratoga Investment pays an annual dividend of $3.00 per share and has a dividend yield of 13.2%. Runway Growth Finance pays an annual dividend of $1.32 per share and has a dividend yield of 18.0%. Saratoga Investment pays out 123.0% 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. Runway Growth Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.
Summary
Runway Growth Finance beats Saratoga Investment on 11 of the 16 factors compared between the two stocks.
About Saratoga Investment
Saratoga Investment Corp. is a business development company specializing in leveraged and management buyouts, acquisition financings, growth financings, recapitalization, debt refinancing, and transitional financing transactions at the lower end of middle market companies. It structures its investments as debt and equity by investing through first and second lien loans, mezzanine debt, co-investments, select high yield bonds, senior secured bonds, unsecured bonds, and preferred and common equity. The firm prefers to invest in aerospace, automotive aftermarket and services, business products and services, consumer products and services, education, environmental services, industrial services, financial services, food and beverage, healthcare products and services, logistics, distribution, manufacturing, restaurants services, food services, software services, technology services, specialty chemical, media and telecommunications. It seeks to invest in the United States. The firm primarily invests $5 million to $50 million in companies having EBITDA of $2 million or greater and revenues of $8 million to $250 million. The firm prefer to take a majority stake. It invests through direct lending as well as participation in loan syndicates. The firm was formerly known as GSC Investment Corp. Saratoga Investment Corp. was formed on 2007 and is based in New York, New York with an additional office in Florham Park, New Jersey.
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.
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