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

Insider and Institutional Ownership

17.5% of Stellus Capital Investment shares are held by institutional investors. Comparatively, 14.3% of Rand Capital shares are held by institutional investors. 5.4% of Stellus Capital Investment shares are held by company insiders. Comparatively, 9.7% of Rand Capital 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.

Earnings & Valuation

This table compares Stellus Capital Investment and Rand Capital’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Stellus Capital Investment $53.27 million 4.91 $26.19 million $1.42 9.75
Rand Capital $2.11 million 8.03 -$390,000.00 N/A N/A

Stellus Capital Investment has higher revenue and earnings than Rand Capital.

Analyst Ratings

This is a breakdown of current ratings and recommmendations for Stellus Capital Investment and Rand Capital, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Stellus Capital Investment 0 1 0 0 2.00
Rand Capital 0 0 0 0 N/A

Stellus Capital Investment currently has a consensus target price of $14.00, indicating a potential upside of 1.16%. Given Stellus Capital Investment’s higher possible upside, research analysts clearly believe Stellus Capital Investment is more favorable than Rand Capital.

Volatility and Risk

Stellus Capital Investment has a beta of 0.68, meaning that its stock price is 32% less volatile than the S&P 500. Comparatively, Rand Capital has a beta of 0.03, meaning that its stock price is 97% less volatile than the S&P 500.

Dividends

Stellus Capital Investment pays an annual dividend of $1.36 per share and has a dividend yield of 9.8%. Rand Capital does not pay a dividend. Stellus Capital Investment pays out 95.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Profitability

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

Net Margins Return on Equity Return on Assets
Stellus Capital Investment 51.60% 9.97% 4.47%
Rand Capital 23.63% 0.41% 0.32%

Summary

Stellus Capital Investment beats Rand Capital on 9 of the 13 factors compared between the two stocks.

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 seeks to invest in companies with an EBITDA between $5 million and $50 million.

About Rand Capital

Rand Capital Corporation is a business development company specializing in venture capital and private equity investments. The firm prefers to make investments through equity or debt instruments in early venture, expansion stage, and in small to medium-sized privately held companies. It generally lends to more mature companies. The firm does not prefer to invest in real estate sector. It invests in companies that are engaged in the exploitation of new or unique products, technologies, or services. The firm invests in healthcare, consumer products, manufacturing, software, and professional services. It seeks to invest in companies based in the Western and Upstate New York region and its surrounding states with focus on Buffalo and Niagara region. The firm may invest in region within three to five hour drives from Western New York including Canada. It typically invests between $0.5 million and $1.5 million and the total investment in rounds is between $1 million and $5 million. The firm seeks to invest up to maximum of $3 million total per company as part of follow-on investments. It invest in startups and companies having annual revenue up to $10 million. The firm seeks to be a lead investor in companies within its geographical area and participates in syndicate/co-invest with other investors outside it. It prefers to invest in businesses that are unique or possess proprietary right. The firm prefers to be a minority investor and seeks to take a Board seat in its portfolio companies. It typically holds its investments for a period of five to seven years. Rand Capital Corporation was founded in 1969 and is based in Buffalo, New York.

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