Comparing Hercules Capital (HTGC) and Fidus Investment (FDUS)

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

Dividends

Hercules Capital pays an annual dividend of $1.24 per share and has a dividend yield of 9.3%. Fidus Investment pays an annual dividend of $1.56 per share and has a dividend yield of 9.8%. Hercules Capital pays out 136.3% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Fidus Investment pays out 78.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Fidus Investment is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility and Risk

Hercules Capital has a beta of 0.87, indicating that its share price is 13% less volatile than the S&P 500. Comparatively, Fidus Investment has a beta of 1.11, indicating that its share price is 11% more volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
Hercules Capital 39.73% 12.93% 6.75%
Fidus Investment 64.21% 9.18% 5.75%

Earnings and Valuation

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Hercules Capital $175.05 million 6.38 $68.70 million $0.91 14.59
Fidus Investment $60.23 million 6.51 $41.57 million $1.98 8.08

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

Analyst Recommendations

This is a summary of recent ratings for Hercules Capital and Fidus Investment, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hercules Capital 0 3 7 0 2.70
Fidus Investment 0 2 0 0 2.00

Hercules Capital currently has a consensus target price of $14.36, suggesting a potential upside of 8.14%. Fidus Investment has a consensus target price of $17.50, suggesting a potential upside of 9.38%. Given Fidus Investment’s higher probable upside, analysts plainly believe Fidus Investment is more favorable than Hercules Capital.

Insider and Institutional Ownership

39.0% of Hercules Capital shares are held by institutional investors. Comparatively, 32.1% of Fidus Investment shares are held by institutional investors. 3.2% of Hercules Capital shares are held by company insiders. Comparatively, 1.3% of Fidus Investment shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

About Hercules Capital

Hercules Capital, Inc. is a specialty finance company. The Company is an internally managed, non-diversified, closed-end investment company. The Company focuses on providing senior secured venture growth loans to venture capital-backed companies in a range of technology, life sciences, and sustainable and renewable technology industries. The Company’s investment objective is to maximize its portfolio total return by generating current income from its debt investments and capital appreciation from its warrant and equity-related investments. The Company’s primary business objectives are to increase its net income, net operating income and net asset value (NAV) by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. The Company focuses its investments in companies active in the technology industry sub-sectors.

About Fidus Investment

Fidus Investment Corporation is a closed-end, non-diversified investment company. The Company provides customized debt and equity financing solutions to lower middle-market companies. The Company’s investment objective is to provide attractive risk-adjusted returns by generating both current income from its debt investments and capital appreciation from its equity-related investments. The Company typically invests in mezzanine debt, which includes senior subordinated notes and junior secured loans. The Company structures some of its debt investments as senior secured or unitranche loans. The Company’s equity securities typically consist of either a direct minority equity investment in common or preferred stock or membership/partnership interests of a portfolio company, or it may receive warrants to buy a minority equity interest in a portfolio company in connection with a debt investment. Its investment activities are managed by Fidus Investment Advisors, LLC, its investment advisor.

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