Head to Head Review: Gladstone Investment (NASDAQ:GAIN) and Morgan Stanley Direct Lending Fund (NYSE:MSDL)

Morgan Stanley Direct Lending Fund (NYSE:MSDL) and Gladstone Investment (NASDAQ:GAIN) are both small-cap finance companies, but which is the better business? We will compare the two businesses based on the strength of their valuation, earnings, profitability, dividends, risk, institutional ownership and analyst recommendations.

Volatility and Risk

Morgan Stanley Direct Lending Fund has a beta of 0.34, meaning that its share price is 66% less volatile than the S&P 500. Comparatively, Gladstone Investment has a beta of 0.82, meaning that its share price is 18% less volatile than the S&P 500.

Insider and Institutional Ownership

11.9% of Gladstone Investment shares are held by institutional investors. 0.2% of Morgan Stanley Direct Lending Fund shares are held by company insiders. Comparatively, 2.4% of Gladstone Investment shares are held by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Morgan Stanley Direct Lending Fund and Gladstone Investment’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Morgan Stanley Direct Lending Fund	30.73%	9.88%	4.49%
Gladstone Investment	118.55%	6.77%	3.22%

Dividends

Morgan Stanley Direct Lending Fund pays an annual dividend of $2.00 per share and has a dividend yield of 13.9%. Gladstone Investment pays an annual dividend of $0.96 per share and has a dividend yield of 6.8%. Morgan Stanley Direct Lending Fund pays out 142.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Gladstone Investment pays out 30.9% of its earnings in the form of a dividend.

Earnings & Valuation

This table compares Morgan Stanley Direct Lending Fund and Gladstone Investment”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Morgan Stanley Direct Lending Fund	$397.29 million	3.11	$122.09 million	$1.40	10.31
Gladstone Investment	$93.66 million	5.97	$65.32 million	$3.11	4.52

Morgan Stanley Direct Lending Fund has higher revenue and earnings than Gladstone Investment. Gladstone Investment is trading at a lower price-to-earnings ratio than Morgan Stanley Direct Lending Fund, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of recent ratings for Morgan Stanley Direct Lending Fund and Gladstone Investment, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Morgan Stanley Direct Lending Fund	0	6	1	0	2.14
Gladstone Investment	0	4	1	0	2.20

Morgan Stanley Direct Lending Fund currently has a consensus target price of $15.58, indicating a potential upside of 7.96%. Given Morgan Stanley Direct Lending Fund’s higher possible upside, equities analysts plainly believe Morgan Stanley Direct Lending Fund is more favorable than Gladstone Investment.

Summary

Gladstone Investment beats Morgan Stanley Direct Lending Fund on 8 of the 15 factors compared between the two stocks.

About Morgan Stanley Direct Lending Fund

Morgan Stanley Direct Lending Fund is a business development company. It is a non-diversified, externally managed specialty finance company focused on lending to middle-market companies. Morgan Stanley Direct Lending Fund is based in NEW YORK.

About Gladstone Investment

Gladstone Investment Corporation is business development company, specializes in lower middle market, mature stage, buyouts; refinancing existing debt; senior debt securities such as senior loans, senior term loans, lines of credit, and senior notes; senior subordinated debt securities such as senior subordinated loans and senior subordinated notes; junior subordinated debt securities such as subordinated notes and mezzanine loans; limited liability company interests, and warrants or options. The fund does not invest in start-ups. The fund seeks to invest in manufacturing, consumer products and business/consumer services sector. It seeks to invest in small and mid-sized companies based in the United States. The fund prefers to make debt investments between $5 million and $30 million and equity investments between $10 million and $40 million in companies. The fund seeks to invest in companies with revenue between $20 million and $100 million. The fund invests in companies with EBITDA from $3 million to $20 million. It seeks minority equity ownership and prefers to hold a board seat in its portfolio companies. It also prefers to take majority stake in its portfolio companies. The fund typically holds the investments for seven years and exits via sale or recapitalization, initial public offering, or sale to third party.