Financial Comparison: Capital Southwest (NASDAQ:CSWC) versus GCM Grosvenor (NASDAQ:GCMG)

GCM Grosvenor (NASDAQ:GCMG) and Capital Southwest (NASDAQ:CSWC) are both finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their earnings, risk, valuation, dividends, institutional ownership, profitability and analyst recommendations.

Valuation & Earnings

This table compares GCM Grosvenor and Capital Southwest”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
GCM Grosvenor	$557.57 million	3.52	$45.37 million	$0.37	26.19
Capital Southwest	$204.44 million	6.37	$70.55 million	$1.81	11.95

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

Profitability

This table compares GCM Grosvenor and Capital Southwest’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
GCM Grosvenor	8.14%	2,505.59%	19.32%
Capital Southwest	45.46%	13.76%	6.51%

Institutional and Insider Ownership

100.0% of GCM Grosvenor shares are owned by institutional investors. Comparatively, 23.4% of Capital Southwest shares are owned by institutional investors. 76.4% of GCM Grosvenor shares are owned by company insiders. Comparatively, 2.8% of Capital Southwest shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Volatility and Risk

GCM Grosvenor has a beta of 0.8, indicating that its share price is 20% less volatile than the S&P 500. Comparatively, Capital Southwest has a beta of 0.75, indicating that its share price is 25% less volatile than the S&P 500.

Dividends

GCM Grosvenor pays an annual dividend of $0.48 per share and has a dividend yield of 5.0%. Capital Southwest pays an annual dividend of $2.32 per share and has a dividend yield of 10.7%. GCM Grosvenor pays out 129.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capital Southwest pays out 128.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Capital Southwest has increased its dividend for 2 consecutive years. Capital Southwest is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of recent ratings and target prices for GCM Grosvenor and Capital Southwest, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
GCM Grosvenor	0	1	2	0	2.67
Capital Southwest	0	3	6	0	2.67

GCM Grosvenor presently has a consensus price target of $19.00, indicating a potential upside of 96.08%. Capital Southwest has a consensus price target of $23.42, indicating a potential upside of 8.26%. Given GCM Grosvenor’s higher probable upside, equities analysts plainly believe GCM Grosvenor is more favorable than Capital Southwest.

About GCM Grosvenor

GCM Grosvenor Inc. is global alternative asset management solutions provider. The firm primarily provides its services to pooled investment vehicles. It also provides its services to investment companies, high net worth individuals, pension and profit sharing plans and state or municipal government entities. The firm invests in equity and alternative investment markets of the United States and internationally. The firm invests in multi-strategy, credit-focused, equity-focused, macro-focused, commodity-focused, and other specialty portfolios. It focuses in hedge fund asset classes, private equity, real estate, and/or infrastructure, credit and absolute return strategies. It also focuses in primary fund investments, secondary fund investments, and co-investments with a focus on buyout, distressed debt, mezzanine, venture capital/growth equity investments. The firm seeks to do seed investments in small, emerging, and diverse private equity firms. The firm seeks to make regionally-focused investments in middle-market buyout. It prefers to invest in aerospace and defense, advanced electronics, information technology, biosciences, and advanced materials. It focuses on Ohio and the Midwest region. The firm employs fundamental and quantitative analysis. GCM Grosvenor Inc. was founded in 1971 and is based in Chicago, Illinois with additional offices in North America, Asia, Australia and Europe.

About Capital Southwest

Capital Southwest Corporation is a business development company specializing in credit and private equity and venture capital investments in middle market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, industry consolidation, recapitalizations and growth capital investments. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. In lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts, and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. The firm is Industry agnostic, but it prefers to invest in Industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, tech-enabled services and SaaS models. The firm seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation. Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products. The firm seeks to invest in the United States and North America. The firm seeks to make investments ranging from $5 million and $25 million in securities. It leads $5 to $70 million financings, Its Target holds of $5 million and $45 million, and the firm is willing to backstop up to $55mm with an active network of co-investors. It seeks to invest in the firm with minimum EBITDA is $3 million and $25 million. In addition to making direct investments, the firm allocates capital to syndicated first and second lien term loans in the upper middle market. Criteria for Upper Middle Market Syndicated 1st Lien is EBITDA Size more than $30 million, Closing Leverage greater than 4 times, investment hold size between $5 million and $7 million up to $15mm with senior loan fund, investment yield greater than 6.5%. Criteria for Upper Middle Market Syndicated 2nd Lien is EBITDA Size more than $50 million, Closing Leverage greater than 6 times, investment hold size between $5 million and $7 million, investment yield greater than 9%. It prefers to take a majority and minority stake. The firm has the flexibility to hold investments for very long period in its portfolio companies. It may also invest through warrants. The firm prefers to take Board participation in its portfolio companies. Capital Southwest Corporation was founded on April 19, 1961 and is based in Dallas, Texas.