Monroe Capital Corporation (NASDAQ: MRCC) and NewStar Financial (NASDAQ:NEWS) are both small-cap finance companies, but which is the superior stock? We will contrast the two businesses based on the strength of their valuation, risk, profitabiliy, institutional ownership, dividends, earnings and analyst recommendations.
This table compares Monroe Capital Corporation and NewStar Financial’s net margins, return on equity and return on assets.
|Net Margins||Return on Equity||Return on Assets|
|Monroe Capital Corporation||41.75%||10.23%||5.77%|
Monroe Capital Corporation pays an annual dividend of $1.40 per share and has a dividend yield of 9.2%. NewStar Financial pays an annual dividend of $0.08 per share and has a dividend yield of 0.7%. Monroe Capital Corporation pays out 112.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. NewStar Financial pays out 14.3% of its earnings in the form of a dividend.
Valuation and Earnings
This table compares Monroe Capital Corporation and NewStar Financial’s gross revenue, earnings per share (EPS) and valuation.
|Gross Revenue||Price/Sales Ratio||EBITDA||Earnings Per Share||Price/Earnings Ratio|
|Monroe Capital Corporation||$45.49 million||N/A||N/A||$1.24||12.33|
|NewStar Financial||$99.47 million||4.55||$23.56 million||$0.56||19.21|
NewStar Financial has higher revenue and earnings than Monroe Capital Corporation. Monroe Capital Corporation is trading at a lower price-to-earnings ratio than NewStar Financial, indicating that it is currently the more affordable of the two stocks.
Insider and Institutional Ownership
32.2% of Monroe Capital Corporation shares are owned by institutional investors. Comparatively, 73.6% of NewStar Financial shares are owned by institutional investors. 1.9% of Monroe Capital Corporation shares are owned by insiders. Comparatively, 8.1% of NewStar Financial shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.
This is a summary of current ratings for Monroe Capital Corporation and NewStar Financial, as reported by MarketBeat.com.
|Sell Ratings||Hold Ratings||Buy Ratings||Strong Buy Ratings||Rating Score|
|Monroe Capital Corporation||0||2||5||0||2.71|
Monroe Capital Corporation currently has a consensus target price of $16.90, indicating a potential upside of 10.53%. NewStar Financial has a consensus target price of $11.00, indicating a potential upside of 2.23%. Given Monroe Capital Corporation’s stronger consensus rating and higher probable upside, equities research analysts clearly believe Monroe Capital Corporation is more favorable than NewStar Financial.
Volatility & Risk
Monroe Capital Corporation has a beta of 0.55, meaning that its stock price is 45% less volatile than the S&P 500. Comparatively, NewStar Financial has a beta of 2.1, meaning that its stock price is 110% more volatile than the S&P 500.
Monroe Capital Corporation beats NewStar Financial on 8 of the 14 factors compared between the two stocks.
Monroe Capital Corporation Company Profile
Monroe Capital Corporation is a closed-end, non-diversified management investment company. The Company is a specialty finance company focused on providing financing primarily to lower middle-market companies in the United States and Canada. The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation primarily through investments in senior, unitranche and junior secured debt, and unsecured subordinated debt and equity. The Company provides customized financing solutions focused primarily on senior secured, junior secured and unitranche (a combination of senior secured and junior secured debt in the same facility) debt, and subordinated debt and equity, including equity co-investments in preferred and common stock and warrants. The Company’s investment activities are managed by its investment advisor, Monroe Capital BDC Advisors, LLC (MC Advisors).
NewStar Financial Company Profile
NewStar Financial, Inc. (NewStar) is a commercial finance company. The Company operates through two segments: Commercial Lending and Asset Management. The Commercial Lending segment represents its direct lending activities, which are focused on providing a range of flexible senior secured debt options to mid-sized companies. The Asset Management segment represents its investment advisory activities, which are focused on providing opportunities for qualified investors to invest in a range of credit funds managed by the Company. The Company’s direct lending activities are focused on meeting the financial needs of companies and private investors in the middle market by offering a range of debt financing options. Through its asset management platforms, NewStar offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit.
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