Financial Analysis: Medallion Financial (NASDAQ:MFIN) vs. Gladstone Capital (NASDAQ:GLAD)

Medallion Financial (NASDAQ:MFIN) and Gladstone Capital (NASDAQ:GLAD) are both small-cap finance companies, but which is the superior business? We will compare the two businesses based on the strength of their institutional ownership, valuation, earnings, profitability, analyst recommendations, dividends and risk.

Dividends

Medallion Financial pays an annual dividend of $0.48 per share and has a dividend yield of 4.6%. Gladstone Capital pays an annual dividend of $1.80 per share and has a dividend yield of 9.5%. Medallion Financial pays out 28.1% of its earnings in the form of a dividend. Gladstone Capital pays out 113.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Capital has raised its dividend for 4 consecutive years. Gladstone Capital is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares Medallion Financial and Gladstone Capital”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Medallion Financial	$302.03 million	0.80	$35.88 million	$1.71	6.06
Gladstone Capital	$89.12 million	4.81	$58.11 million	$1.59	11.92

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

Insider and Institutional Ownership

40.6% of Medallion Financial shares are owned by institutional investors. Comparatively, 10.7% of Gladstone Capital shares are owned by institutional investors. 24.6% of Medallion Financial shares are owned by company insiders. Comparatively, 3.8% of Gladstone Capital shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Profitability

This table compares Medallion Financial and Gladstone Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Medallion Financial	12.12%	9.28%	1.55%
Gladstone Capital	39.42%	9.56%	5.40%

Analyst Ratings

This is a breakdown of recent recommendations and price targets for Medallion Financial and Gladstone Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Medallion Financial	0	2	1	0	2.33
Gladstone Capital	0	4	2	0	2.33

Medallion Financial presently has a consensus target price of $12.00, suggesting a potential upside of 15.83%. Gladstone Capital has a consensus target price of $21.67, suggesting a potential upside of 14.28%. Given Medallion Financial’s higher probable upside, equities analysts clearly believe Medallion Financial is more favorable than Gladstone Capital.

Risk and Volatility

Medallion Financial has a beta of 0.77, indicating that its share price is 23% less volatile than the S&P 500. Comparatively, Gladstone Capital has a beta of 0.94, indicating that its share price is 6% less volatile than the S&P 500.

Summary

Gladstone Capital beats Medallion Financial on 10 of the 16 factors compared between the two stocks.

About Medallion Financial

Medallion Financial Corp., together with its subsidiaries, operates as a specialty finance company in the United States. It operates in four segments: Recreation Lending, Home Improvement Lending, Commercial Lending, and Taxi Medallion Lending. The company offers loans that finance consumer purchases of recreational vehicles, boats, and other consumer recreational equipment; consumer financing for window, siding, and roof replacement, swimming pool installations, and other home improvement projects; senior and subordinated loans for the purchase of equipment and related assets necessary to open a new business, or purchase or improvement of an existing business; and taxi medallion loans to individuals and small to mid-size businesses. It also provides debt, mezzanine, and equity investment capital to companies in various commercial industries; and raises deposits and conducts other banking activities. Medallion Financial Corp. was incorporated in 1995 and is headquartered in New York City, New York.

About Gladstone Capital

Gladstone Capital Corporation is a business development company specializing in lower middle market, growth capital, add on acquisitions, change of control, buy & build strategies, debt refinancing, debt investments in senior term loans, revolving loans, secured first and second lien term loans, senior subordinated loans, unitranche loans, junior subordinated loans, and mezzanine loans and equity investments in the form of common stock, preferred stock, limited liability company interests, or warrants. It operates as a business development company. The fund also makes private equity investments in acquisitions, buyouts and recapitalizations, and refinancing existing debts. It targets small and medium-sized companies in United States. It is industry agnostic and seeks to invest in companies engaged in the business services, light and specialty manufacturing, niche industrial products and services, specialty consumer products and services, energy services, transportation and logistics, healthcare and education services, specialty chemicals, media and communications and aerospace and defense. The fund seeks to invest between $7 million and $30 million in companies that have between $20 million and $150 million in sales and EBITDA between $3 million and $25 million. It prefers to acquire minority stakes. It seeks to exit its investments through strategic acquisitions by other industry participants or financial buyers, initial public offerings of common stock, or other capital market transactions.