Fifth Street Finance Corp - A Bull Rating

| About: Fifth Street (FSC)

Fifth Street Finance Corp (NYSE:FSC) recently came up on our radar after adding the company to our database due to another Seeking Alpha article.

Our Rating

Newton Analytics rates this company a Bull because of its great financial standing and relatively low valuation compared to market price. The overall Newton Score is a 66.25 (of 100 being the most) and a Newton Value of 1.15 (multiple of current price).

Detailed Analysis

Our algorithms reviewed FSC's most recent financials and measured Liquidity, Balance Sheet Strength, and Management. This is what we found:

Liquidity of the company received a score of 19.16 (out of 33.33).

  1. Operating capital is very liquid allowing for a high level of financial flexibility.
  2. There is relatively more working capital than needed to fund the revenue growth.
  3. And, the amount of working capital is being poorly managed.

Balance Sheet Strength received a score of 29.17 (out of 33.33).

  1. The company is overall underleveraged, keeping future financing wide open to possibilities.
  2. And, the company is growing assets in part by leveraging existing assets.

Management received a score of 16.66 (out of 33.33).

  1. The company's business model produces high returns.
  2. The company's net income figure is not of very good quality as the company is bleeding operational cash.
  3. Investments are being cashed-in to support operations, this is not a great sign of capital improvement.
  4. FSC also returns equity back to the shareholders.

Valuation is a 1.15, meaning the company is undervalued (anything above a 1.0625).

  1. Net Tangible Book Value per Share = $9.84
  2. EPS = $0.73
  3. Total Value = $10.57
  4. Newton Value = $10.57 / $9.19 = 1.15

Having a low valuation and an above average score puts this company in the Bull category.

Compared to Others in the Industry

FSC stands out as being the only company to be currently Bull Rated in the Credit Services industry. The industry has above average quality measures with most companies falling into the Cow category (high quality, overvalued). Only two companies fell into the Bear category (low quality, overvalued).

About the Company

Fifth Street Finance Corp is a business development company (often referred to as BDC) that focuses in middle market investing, and financing bridge loans, 1st and 2nd liens. FSC also deals in acquisitions, buyouts, and direct investments in a wide array of industries including education services, business services, retail, healthcare, manufacturing, food, construction, engineering, and media. The fund mostly invests in North American companies in which they tend to be the primary investor.

Disclosure: I am long FSC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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