Reviewing Ares Capital (NASDAQ:ARCC) & Fairfax Financial (NASDAQ:FFXDF)

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

Analyst Recommendations

This is a breakdown of recent recommendations for Ares Capital and Fairfax Financial, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Ares Capital 0 0 9 0 3.00
Fairfax Financial 0 0 1 0 3.00

Ares Capital currently has a consensus price target of $16.44, suggesting a potential upside of 14.15%. Given Ares Capital’s higher possible upside, equities research analysts clearly believe Ares Capital is more favorable than Fairfax Financial.

Valuation and Earnings

This table compares Ares Capital and Fairfax Financial’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Ares Capital $1.53 billion 3.98 $793.00 million $1.89 7.62
Fairfax Financial $712.69 million 1.52 $516.34 million N/A N/A

Ares Capital has higher revenue and earnings than Fairfax Financial.

Insider & Institutional Ownership

35.1% of Ares Capital shares are owned by institutional investors. Comparatively, 0.2% of Fairfax Financial shares are owned by institutional investors. 0.6% of Ares Capital shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Volatility and Risk

Ares Capital has a beta of 1.13, indicating that its share price is 13% more volatile than the S&P 500. Comparatively, Fairfax Financial has a beta of 1.3, indicating that its share price is 30% more volatile than the S&P 500.

Profitability

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

Net Margins Return on Equity Return on Assets
Ares Capital -2.17% 10.81% 5.28%
Fairfax Financial N/A 0.95% 0.73%

Summary

Ares Capital beats Fairfax Financial on 9 of the 12 factors compared between the two stocks.

Ares Capital Company Profile

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.

Fairfax Financial Company Profile

Fairfax India Holdings Corporation, an investment holding company, engages in the investment activities in India. It invests in public and private equity securities and debt instruments in India and Indian businesses, or other businesses with customers, suppliers, or business primarily conducted in, or dependent on, India. The company was founded in 2014 and is headquartered in Toronto, Canada. Fairfax India Holdings Corporation is a subsidiary of Fairfax Financial Holdings Limited.

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