Critical Comparison: Value Line (NASDAQ:VALU) & Prospect Capital (NASDAQ:PSEC)

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

Valuation & Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Value Line	$35.08 million	10.06	$20.69 million	$2.26	16.59
Prospect Capital	-$197.65 million	-6.36	-$469.92 million	($0.86)	-3.10

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

Risk and Volatility

Value Line has a beta of 1.25, indicating that its stock price is 25% more volatile than the S&P 500. Comparatively, Prospect Capital has a beta of 0.85, indicating that its stock price is 15% less volatile than the S&P 500.

Dividends

Value Line pays an annual dividend of $1.30 per share and has a dividend yield of 3.5%. Prospect Capital pays an annual dividend of $0.54 per share and has a dividend yield of 20.2%. Value Line pays out 57.5% 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. Value Line has raised its dividend for 11 consecutive years. Prospect Capital is clearly the better dividend stock, given its higher yield and lower payout ratio.

Institutional and Insider Ownership

6.3% of Value Line shares are held by institutional investors. Comparatively, 9.1% of Prospect Capital shares are held by institutional investors. 0.0% of Value Line shares are held by insiders. Comparatively, 28.0% of Prospect Capital shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Analyst Recommendations

This is a breakdown of recent ratings and recommmendations for Value Line and Prospect Capital, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Value Line	0	1	0	0	2.00
Prospect Capital	2	0	0	0	1.00

Prospect Capital has a consensus price target of $2.50, indicating a potential downside of 6.37%. Given Prospect Capital’s higher probable upside, analysts clearly believe Prospect Capital is more favorable than Value Line.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Value Line	61.09%	21.35%	14.76%
Prospect Capital	-42.50%	12.29%	5.63%

Summary

Value Line beats Prospect Capital on 11 of the 16 factors compared between the two stocks.

About Value Line

Value Line, Inc. produces and sells investment periodicals and related publications. Its investment periodicals and related publications cover a range of investments, including stocks, mutual funds, exchange traded funds (ETFs), and options. The company's research services include The Value Line Investment Survey, The Value Line Investment Survey – Small and Mid-Cap, The Value Line 600, and The Value Line Fund Advisor Plus that provide statistical and text coverage of various investment securities, with an emphasis placed on its proprietary research, analysis, and statistical ranks. It also provides niche newsletters comprising Value Line Select: Dividend Income & Growth, Value Line Select: ETFs, The Value Line Special Situations Service, The Value Line M&A Service, The Value Line Climate Change Investing Service, and The Value Line Information You Should Know Wealth Newsletter that offer information on a less comprehensive basis for securities that are of particular interest to subscribers; digital versions of its products through its Website, www.valueline.com; The Value Line Research Center online platform; and investment analysis software, such as The Value Line Investment Analyzer and The New Value Line ETFs Service. In addition, the company offers current and historical financial databases comprising fundamental DataFile, estimates and projections, and mutual funds; and copyright products, which include unit investment trusts, variable annuities, managed accounts, and ETFs. Further, it operates as publishing unit for the investment related periodical publications and copyrights; places advertising on behalf of the company's publications; and distributes print publications. It serves individual and professional investors, as well as institutions, including municipal and university libraries, and investment firms. The company was founded in 1931 and is headquartered in New York, New York. Value Line, Inc. is a subsidiary of Arnold Bernhard & Co., Inc.

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.