Reviewing Ares Capital (NASDAQ:ARCC) & Fidus Investment (NASDAQ:FDUS)

Ares Capital (NASDAQ:ARCC) and Fidus Investment (NASDAQ:FDUS) are both finance companies, but which is the superior stock? We will compare the two companies based on the strength of their earnings, dividends, profitability, analyst recommendations, valuation, risk and institutional ownership.

Profitability

This table compares Ares Capital and Fidus Investment’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ares Capital	42.56%	9.89%	4.66%
Fidus Investment	52.87%	10.71%	5.81%

Insider & Institutional Ownership

27.4% of Ares Capital shares are owned by institutional investors. Comparatively, 28.1% of Fidus Investment shares are owned by institutional investors. 0.5% of Ares Capital shares are owned by insiders. Comparatively, 0.9% of Fidus Investment shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Dividends

Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.1%. Fidus Investment pays an annual dividend of $1.72 per share and has a dividend yield of 9.6%. Ares Capital pays out 103.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Fidus Investment pays out 73.5% of its earnings in the form of a dividend.

Risk and Volatility

Ares Capital has a beta of 0.59, suggesting that its share price is 41% less volatile than the S&P 500. Comparatively, Fidus Investment has a beta of 0.72, suggesting that its share price is 28% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Ares Capital and Fidus Investment, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ares Capital	0	2	7	0	2.78
Fidus Investment	0	2	1	1	2.75

Ares Capital currently has a consensus price target of $22.00, indicating a potential upside of 15.91%. Fidus Investment has a consensus price target of $21.75, indicating a potential upside of 20.97%. Given Fidus Investment’s higher possible upside, analysts clearly believe Fidus Investment is more favorable than Ares Capital.

Earnings and Valuation

This table compares Ares Capital and Fidus Investment”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ares Capital	$3.05 billion	4.47	$1.30 billion	$1.86	10.20
Fidus Investment	$155.87 million	4.38	$82.40 million	$2.34	7.68

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

Summary

Fidus Investment beats Ares Capital on 10 of the 17 factors compared between the two stocks.

About Ares Capital

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.

About Fidus Investment

Fidus Investment Corporation is a business development company. It specializing in leveraged buyouts, refinancings, change of ownership transactions, recapitalizations, strategic acquisitions, mezzanine, growth capital, business expansion, lower middle market investments, debt investments, subordinated and second lien loans, senior secured and unitranche debt, preferred equity, warrants, subordinated debt, senior subordinated notes, junior secured loans, and unitranche loans. It does not invest in turnarounds or distressed situations. The fund prefers to invest in aerospace and defense, business services, consumer products and services including retail, food, and beverage, healthcare products and services, industrial products and services, information technology services, niche manufacturing, transportation and logistics, and value-added distribution sectors. It seeks to invest in companies based in United States. The fund typically invests between $5 million and $15 million per transaction in companies with annual revenues between $10 million and $150 million and an annual EBITDA between $3 million and $20 million, but it can occasionally invest in larger or smaller companies. It seeks to acquire minority equity stakes and board observation rights in conjunction with its investments.