Valuation method | Value, $ | Upside, % |
---|---|---|
Artificial intelligence (AI) | 122.64 | 330 |
Intrinsic value (DCF) | 0.00 | -100 |
Graham-Dodd Method | 14.01 | -51 |
Graham Formula | 84.44 | 196 |
Gladstone Capital Corporation (NASDAQ: GLAD) is a leading business development company (BDC) specializing in lower middle-market investments across diverse industries. Focused on providing flexible debt and equity financing solutions, GLAD targets small to medium-sized U.S. businesses with $20M–$150M in revenue and $3M–$25M in EBITDA. The company invests $7M–$30M per transaction, primarily through senior secured loans, subordinated debt, and minority equity positions. GLAD operates as an industry-agnostic lender, serving sectors like business services, specialty manufacturing, healthcare, and energy services. As a BDC, it offers investors exposure to private credit markets with a high-yield dividend strategy, currently yielding ~10%. The firm differentiates itself through its hands-on portfolio management approach and focus on defensive industries with strong cash flow characteristics. With a market cap of ~$583M, GLAD provides retail investors access to middle-market private credit typically reserved for institutional investors.
GLAD presents an attractive high-yield investment opportunity (current dividend yield ~10%) for income-focused investors seeking exposure to private middle-market credit. The company benefits from rising interest rates due to its floating-rate loan portfolio (90%+ of investments are floating rate), with net investment income increasing 15% YoY. However, risks include potential credit deterioration in its $1.1B portfolio (non-accruals were 1.5% at fair value as of last report) and BDC sector volatility. The stock trades at a slight premium to NAV (~1.05x), reflecting market confidence in its underwriting. With strong EPS coverage of its dividend (108% in last quarter) and 20+ year operating history, GLAD offers relatively stable high yield in the BDC space, though investors should monitor portfolio credit quality and interest rate environment changes.
Gladstone Capital competes in the crowded middle-market BDC space by focusing on smaller transactions ($7M–$30M) that larger BDCs often overlook. Its competitive advantage stems from: 1) Specialization in true lower middle-market (sub-$25M EBITDA companies) where competition is less intense versus upper middle-market, 2) Industry-agnostic approach allows flexibility in capital deployment, 3) 20+ year track record with consistent dividend payments, and 4) Conservative leverage at 1.1x debt-to-equity versus the 2.0x regulatory maximum for BDCs. GLAD differentiates through its 'relationship banking' approach, often being the sole lender to its portfolio companies. However, it faces pressure from larger BDCs like Ares Capital (ARCC) that benefit from scale advantages in funding costs. GLAD's portfolio is concentrated in business services (30%) and manufacturing (25%), which provides sector diversification but may lag specialty finance BDCs during sector-specific booms. The company's 11.5% weighted average yield on debt investments is competitive but not category-leading, reflecting its focus on senior secured positions (85% of portfolio) versus higher-yielding junior debt strategies employed by some peers.