The investment mantra of "being greedy when others are fearful" certainly applied to Hercules Capital (NYSE:HTGC), for much of last year, when its shares were down in the dumps. This is demonstrated by the 48% rise in share price (not including dividends) since I first visited the stock back in May of last year, far surpassing the 28% rise in the S&P 500 (SPY).
While we cannot turn back the clock and buy more at bargain basement prices, I believe HTGC still presents an attractive value proposition for income-oriented investors at current prices. I evaluate what makes Hercules a continued buy at present, so let's get started.
Why HTGC Remains A Buy
Hercules Capital is an internally-managed BDC that focuses on investments in the technology and life sciences space. Since inception in 2003, Hercules has committed more than $11B to over 520 companies, serving as a source of growth capital financing in partnership with venture capital firms. As of Q4'20, Hercules had a $2.35B investment portfolio at fair value, of which $2.1B is debt and the remainder is comprised of equity and warrants.
I find Hercules as having a relatively efficient operating structure. This is supported by the 2.4% operating expense to total assets ratio that it achieved in 2020, based on $63.2M in operating expense dividend by $2,624M in total assets. This puts it on par with industry bellwether, Ares Capital (ARCC), which has the same ratio, and compares favorably to Prospect Capital (PSEC), which had a 3.7% ratio in 2020. For added reference, Main Street Capital (MAIN) is the industry leader, with a 1.3% ratio in 2020.
This, combined with sound investment practices, have resulted in strong shareholder gains. As seen below, HTGC's total shareholder return has outpaced that of its peer group and that of the Wells Fargo BDCS Index over
