New Mountain Finance (NASDAQ:NMFC) versus OFS Capital (NASDAQ:OFS) Critical Survey

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New Mountain Finance (NASDAQ:NMFC) and OFS Capital (NASDAQ:OFS) are both small-cap finance companies, but which is the better stock? We will contrast the two companies based on the strength of their institutional ownership, analyst recommendations, valuation, profitability, earnings, dividends and risk.

Volatility & Risk

New Mountain Finance has a beta of 1.22, indicating that its stock price is 22% more volatile than the S&P 500. Comparatively, OFS Capital has a beta of 1.36, indicating that its stock price is 36% more volatile than the S&P 500.

Valuation and Earnings

This table compares New Mountain Finance and OFS Capital’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
New Mountain Finance $276.51 million 3.47 $112.56 million $1.27 7.80
OFS Capital $52.52 million 1.18 $9.55 million $1.43 3.24

New Mountain Finance has higher revenue and earnings than OFS Capital. OFS Capital is trading at a lower price-to-earnings ratio than New Mountain Finance, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares New Mountain Finance and OFS Capital’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
New Mountain Finance -17.83% 10.54% 3.96%
OFS Capital -43.10% 10.62% 3.18%

Institutional and Insider Ownership

34.0% of New Mountain Finance shares are owned by institutional investors. Comparatively, 12.6% of OFS Capital shares are owned by institutional investors. 9.1% of New Mountain Finance shares are owned by company insiders. Comparatively, 0.0% of OFS Capital shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company is poised for long-term growth.

Dividends

New Mountain Finance pays an annual dividend of $1.20 per share and has a dividend yield of 12.1%. OFS Capital pays an annual dividend of $0.68 per share and has a dividend yield of 14.7%. New Mountain Finance pays out 94.5% 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 47.6% of its earnings in the form of a dividend. OFS Capital has raised its dividend for 1 consecutive years. OFS Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Ratings

This is a breakdown of recent recommendations and price targets for New Mountain Finance and OFS Capital, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
New Mountain Finance 0 0 0 0 N/A
OFS Capital 0 2 0 0 2.00

OFS Capital has a consensus target price of $6.00, indicating a potential upside of 29.31%. Given OFS Capital’s higher possible upside, analysts plainly believe OFS Capital is more favorable than New Mountain Finance.

Summary

OFS Capital beats New Mountain Finance on 8 of the 15 factors compared between the two stocks.

New Mountain Finance Company Profile

New Mountain Finance Corporation is a Business Development Company specializing in investments in middle market companies and debt securities at various levels of the capital structure, including first and second lien debt, unsecured notes, bonds, and mezzanine securities. It invests in various industries that include software, education, business services, distribution and logistics, federal services, healthcare services and products, healthcare facilities, energy, media, consumer and industrial services, healthcare Information Technology, Information Technology and services, specialty chemicals and materials, telecommunication, retail, and power generation. It seeks to invest in United States. It typically invests between $10 million and $50 million. Within middle market it seeks to invest in companies having EBITDA between $20 million and $200 million. It prefers to invest in equity interests, such as preferred stock, common stock, warrants, or options received in connection with its debt investments and directly in the equity of private companies. The fund makes investments through both primary originations and open-market secondary purchases. It invests primarily in debt securities that are rated below investment grade and have contractual unlevered returns of 10% to 15%. The firm may also invest in distressed debt and related opportunities and prefers to invest in targets having private equity sponsorship. It seeks to hold its investments between five years and ten years. The fund prefer to have majority stake in companies.

OFS Capital Company Profile

OFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. 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, 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, food and beverage, health care services, specialty chemicals, transportation 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 $5 million and $20 million, revenues between $10 million and $200 million, Annual EBITDA more than $3 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 stake in the investments made. It also co-invests with its partners for additional capital.

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