Critical Survey: Hamilton Lane (NASDAQ:HLNE) versus Capital Southwest (NASDAQ:CSWC)

Hamilton Lane (NASDAQ:HLNE) and Capital Southwest (NASDAQ:CSWC) are both finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their dividends, analyst recommendations, profitability, valuation, risk, institutional ownership and earnings.

Dividends

Hamilton Lane pays an annual dividend of $2.40 per share and has a dividend yield of 2.9%. Capital Southwest pays an annual dividend of $2.32 per share and has a dividend yield of 10.4%. Hamilton Lane pays out 36.6% of its earnings in the form of a dividend. Capital Southwest pays out 128.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Hamilton Lane has raised its dividend for 8 consecutive years and Capital Southwest has raised its dividend for 2 consecutive years.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Hamilton Lane and Capital Southwest, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Hamilton Lane	0	3	7	0	2.70
Capital Southwest	0	2	6	0	2.75

Hamilton Lane presently has a consensus price target of $124.00, indicating a potential upside of 49.19%. Capital Southwest has a consensus price target of $24.10, indicating a potential upside of 8.36%. Given Hamilton Lane’s higher probable upside, analysts clearly believe Hamilton Lane is more favorable than Capital Southwest.

Profitability

This table compares Hamilton Lane and Capital Southwest’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Hamilton Lane	32.14%	25.10%	15.75%
Capital Southwest	46.68%	13.88%	6.45%

Valuation & Earnings

This table compares Hamilton Lane and Capital Southwest”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Hamilton Lane	$758.99 million	6.08	$249.18 million	$6.56	12.67
Capital Southwest	$232.10 million	6.11	$113.00 million	$1.81	12.29

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

Risk & Volatility

Hamilton Lane has a beta of 1.23, suggesting that its stock price is 23% more volatile than the S&P 500. Comparatively, Capital Southwest has a beta of 0.71, suggesting that its stock price is 29% less volatile than the S&P 500.

Insider & Institutional Ownership

97.4% of Hamilton Lane shares are held by institutional investors. Comparatively, 23.4% of Capital Southwest shares are held by institutional investors. 24.0% of Hamilton Lane shares are held by insiders. Comparatively, 2.7% of Capital Southwest shares are held by 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.

Summary

Hamilton Lane beats Capital Southwest on 13 of the 17 factors compared between the two stocks.

About Hamilton Lane

Hamilton Lane Incorporated is a private equity firm specializing in early venture, emerging growth, turnaround, middle market, mature, mid-venture, bridge, buyout, distressed/vulture, loan, mezzanine in growth capital companies. It prefers to invest in energy, industrials, consumer discretionary, health care, real estate, information technology, utilities, and consumer services. The firm prefers to invest in Africa/Middle East, Asia/Pacific, Europe, Latin America and Caribbean, United States of America, and Canada. The firm prefers to invest between $1 million and $100 million. It prefers to take majority stake. Hamilton Lane Incorporated was founded in 1991 and is based in Conshohocken, Pennsylvania with additional offices across Europe, North America, Asia Pacific and the Middle East.

About Capital Southwest

Capital Southwest Corporation is a business development company specializing in credit and private equity and venture capital investments in middle market companies, mezzanine, later stage, mature, late venture, emerging growth, buyouts, industry consolidation, recapitalizations and growth capital investments. It does not invest in startups, publicly traded companies, real estate developments, project finance opportunities, oil and gas exploration businesses, troubled companies, turnarounds, and companies in which significant senior management is departing. In lower middle market, the firm typically invests in growth financing, bolt-on acquisitions, new platform acquisitions, refinancing, dividend recapitalizations, sponsor-led buyouts, and management buyouts situations. The investment structures are Unitranche debt, subordinated debt, senior debt, first and second lien debt, and preferred and common equity. The firm makes equity co-investments alongside debt investments, up to 20% of total check and only makes non-control investments. The firm is Industry agnostic, but it prefers to invest in Industrial manufacturing and services, value-added distribution, healthcare products and services, business services, specialty chemicals, food and beverage, tech-enabled services and SaaS models. The firm seeks to invest in energy services and products, industrial technologies, and specialty chemicals and products. Within energy services and products, the firm seeks to invest in each segment of the industry, including upstream, midstream and downstream, excluding exploration and production with a focus on differentiated products and services, equipment and tool rental, consumable products, and drilling and completion chemicals. Within industrial technologies, it seeks to invest in automation and process controls, handling and packaging equipment, industrial filtration and fluid handling, measurement, monitoring and testing, professional tools, and sensors and instrumentation. Within and specialty chemicals and products, the firm seeks to invest in businesses that develop and manufacture highly differentiated chemicals and products including adhesives, coatings and sealants, catalysts and absorbents, cosmeceuticals, fine chemicals, flavors and fragrances, performance lubricants, polymers, plastics and composites, chemical dispensing and filtration equipment, professional and industrial trade consumables and tools, engineered solutions for HVAC, plumbing, and electrical installations, specified high performance materials for fire protection and oilfield applications. It may also invest in exceptional opportunities in building products. The firm seeks to invest in the United States and North America. The firm seeks to make investments ranging from $5 million and $25 million in securities. It leads $5 to $70 million financings, Its Target holds of $5 million and $45 million, and the firm is willing to backstop up to $55mm with an active network of co-investors. It seeks to invest in the firm with minimum EBITDA is $3 million and $25 million. In addition to making direct investments, the firm allocates capital to syndicated first and second lien term loans in the upper middle market. Criteria for Upper Middle Market Syndicated 1st Lien is EBITDA Size more than $30 million, Closing Leverage greater than 4 times, investment hold size between $5 million and $7 million up to $15mm with senior loan fund, investment yield greater than 6.5%. Criteria for Upper Middle Market Syndicated 2nd Lien is EBITDA Size more than $50 million, Closing Leverage greater than 6 times, investment hold size between $5 million and $7 million, investment yield greater than 9%. It prefers to take a majority and minority stake. The firm has the flexibility to hold investments for very long period in its portfolio companies. It may also invest through warrants. The firm prefers to take Board participation in its portfolio companies. Capital Southwest Corporation was founded on April 19, 1961 and is based in Dallas, Texas.