Ares Capital (NASDAQ:ARCC – Get Free Report) and Nasdaq (NASDAQ:NDAQ – Get Free Report) are both large-cap finance companies, but which is the better investment? We will compare the two businesses based on the strength of their earnings, analyst recommendations, valuation, institutional ownership, dividends, risk and profitability.
Valuation and Earnings
This table compares Ares Capital and Nasdaq”s revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio | |
| Ares Capital | $3.05 billion | 4.39 | $1.30 billion | $1.35 | 13.81 |
| Nasdaq | $9.15 billion | 6.27 | $1.79 billion | $3.66 | 28.02 |
Nasdaq has higher revenue and earnings than Ares Capital. Ares Capital is trading at a lower price-to-earnings ratio than Nasdaq, indicating that it is currently the more affordable of the two stocks.
Analyst Ratings
This is a breakdown of current ratings and recommmendations for Ares Capital and Nasdaq, as provided by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score | |
| Ares Capital | 0 | 3 | 8 | 0 | 2.73 |
| Nasdaq | 0 | 4 | 13 | 1 | 2.83 |
Ares Capital presently has a consensus price target of $20.39, suggesting a potential upside of 9.38%. Nasdaq has a consensus price target of $113.53, suggesting a potential upside of 10.70%. Given Nasdaq’s stronger consensus rating and higher probable upside, analysts plainly believe Nasdaq is more favorable than Ares Capital.
Risk and Volatility
Ares Capital has a beta of 0.61, meaning that its share price is 39% less volatile than the S&P 500. Comparatively, Nasdaq has a beta of 0.99, meaning that its share price is 1% less volatile than the S&P 500.
Dividends
Ares Capital pays an annual dividend of $1.92 per share and has a dividend yield of 10.3%. Nasdaq pays an annual dividend of $1.24 per share and has a dividend yield of 1.2%. Ares Capital pays out 142.2% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Nasdaq pays out 33.9% of its earnings in the form of a dividend. Nasdaq has raised its dividend for 14 consecutive years.
Profitability
This table compares Ares Capital and Nasdaq’s net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets | |
| Ares Capital | 30.91% | 9.80% | 4.50% |
| Nasdaq | 22.81% | 19.03% | 8.12% |
Institutional and Insider Ownership
27.4% of Ares Capital shares are held by institutional investors. Comparatively, 72.5% of Nasdaq shares are held by institutional investors. 0.5% of Ares Capital shares are held by company insiders. Comparatively, 0.6% of Nasdaq shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.
Summary
Nasdaq beats Ares Capital on 16 of the 18 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 Nasdaq
Nasdaq, Inc. operates as a technology company that serves capital markets and other industries worldwide. It operates in three segments: Capital Access Platforms, Financial Technology, and Market Services. The Capital Access Platforms segment sells and distributes historical and real-time market data; and develops and licenses Nasdaq-branded indices and financial products. This segment also offers investor relations intelligence, governance solutions, and ESG solutions; and insights and workflow solutions, as well as operates listing platforms. The Financial Technology segment offers Verafin, a cloud-based platform to detect, investigate, and report money laundering and financial frauds; surveillance solutions, including a SaaS platform to assist in complying with market rules, regulations, and internal market surveillance policies; AxiomSL, a risk data management and regulatory reporting solution; and Calypso, a front-to-back trading technology solution for the financial market. This segment also handles assets, comprising cash equities, equity derivatives, currencies, various interest-bearing securities, commodities, energy products, and digital currencies; and trade management and colocation services. The Market Platforms segment offers equity derivative trading and clearing, cash equity trading, fixed income and commodities trading and clearing, and currency trading services. This segment operates various exchanges and other marketplace facilities across various asset classes which includes derivatives, commodities, cash equity, debt, structured products, and exchange traded products; and provides clearing, settlement, and central depository services. The company was formerly known as The NASDAQ OMX Group, Inc. and changed its name to Nasdaq, Inc. in September 2015. Nasdaq, Inc. was founded in 1971 and is headquartered in New York, New York.
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