TPG (NASDAQ:TPG) & Prospect Capital (NASDAQ:PSEC) Critical Comparison

TPG (NASDAQ:TPG) and Prospect Capital (NASDAQ:PSEC) are both finance companies, but which is the better investment? We will contrast the two companies based on the strength of their earnings, institutional ownership, valuation, profitability, risk, analyst recommendations and dividends.

Insider & Institutional Ownership

94.0% of TPG shares are held by institutional investors. Comparatively, 9.1% of Prospect Capital shares are held by institutional investors. 76.5% of TPG shares are held by company insiders. Comparatively, 28.3% of Prospect Capital shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Profitability

This table compares TPG and Prospect Capital’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
TPG	0.90%	24.47%	7.95%
Prospect Capital	-36.07%	12.43%	5.83%

Dividends

TPG pays an annual dividend of $1.64 per share and has a dividend yield of 2.8%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 15.6%. TPG pays out -497.0% of its earnings in the form of a dividend. Prospect Capital pays out -62.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Analyst Ratings

This is a breakdown of recent recommendations for TPG and Prospect Capital, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
TPG	0	7	7	0	2.50
Prospect Capital	1	0	0	0	1.00

TPG currently has a consensus price target of $59.77, indicating a potential upside of 2.34%. Prospect Capital has a consensus price target of $3.00, indicating a potential downside of 13.29%. Given TPG’s stronger consensus rating and higher possible upside, equities research analysts clearly believe TPG is more favorable than Prospect Capital.

Valuation and Earnings

This table compares TPG and Prospect Capital”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
TPG	$3.50 billion	6.21	$23.48 million	($0.33)	-176.97
Prospect Capital	$861.66 million	1.79	$262.83 million	($0.86)	-4.02

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

Volatility and Risk

TPG has a beta of 1.55, suggesting that its share price is 55% more volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.83, suggesting that its share price is 17% less volatile than the S&P 500.

Summary

TPG beats Prospect Capital on 13 of the 16 factors compared between the two stocks.

About TPG

TPG Inc. operates as an alternative asset manager in the United States and internationally. The company offers investment management services to TPG Funds, limited partners, and other vehicles. It also offers monitoring services to portfolio companies; advisory, debt and equity arrangement, and underwriting and placement services; and capital structuring and other advisory services to portfolio companies. In addition, the company invests in private equity funds, real estate funds, hedge funds, and credit funds. TPG Inc. was founded in 1992 and is based in Fort Worth, Texas. The company operates as a subsidiary of TPG GP A, LLC.

About Prospect Capital

Prospect Capital Corporation is a business development company. It specializes in middle market, mature, mezzanine finance, later stage, emerging growth, leveraged buyouts, refinancing, acquisitions, recapitalizations, turnaround, growth capital, development, capital expenditures and subordinated debt tranches of collateralized loan obligations, cash flow term loans, market place lending and bridge transactions. It also makes real estate investments particularly in multi-family residential real estate asset class. The fund makes secured debt, senior debt, senior and secured term loans, unitranche debt, first-lien and second lien, private debt, private equity, mezzanine debt, and equity investments in private and microcap public businesses. It focuses on both primary origination and secondary loans/portfolios and invests in situations like debt financings for private equity sponsors, acquisitions, dividend recapitalizations, growth financings, bridge loans, cash flow term loans, real estate financings/investments. It also focuses on investing in small-sized and medium-sized private companies rather than large public companies. The fund typically invests across all industry sectors, with a particular expertise in the energy and industrial sectors. It invests in aerospace and defense, chemicals, conglomerate services, consumer services, ecological, electronics, financial services, machinery, manufacturing, media, pharmaceuticals, retail, software, specialty minerals, textiles and leather, transportation, oil and gas production, coal production, materials, industrials, consumer discretionary, information technology, utilities, pipeline, storage, power generation and distribution, renewable and clean energy, oilfield services, healthcare, food and beverage, education, business services, and other select sectors. It prefers to invest in the United States and Canada. The fund seeks to invest between $10 million to $500 million per transaction in companies with EBITDA between $5 million and $150 million, sales value between $25 million and $500 million, and enterprise value between $5 million and $1000 million. It fund also co-invests for larger deals. The fund seeks control acquisitions by providing multiple levels of the capital structure. The fund focuses on sole, agented, club, or syndicated deals.