Stellus Capital (SCM) AI Stock Analysis

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Stellus Capital

(NYSE:SCM)

67Neutral

Stellus Capital's overall score reflects solid valuation metrics and robust investment activity, tempered by profitability challenges and cash flow issues. The company's conservative leverage and record portfolio size are positives but are offset by concerns about dividend coverage and nonaccrual loans.

Stellus Capital (SCM) vs. S&P 500 (SPY)

Market Cap

$326.66M

Dividend Yield13.48%

Average Volume (3M)258.18K

Price to Earnings (P/E)6.6

Beta (1Y)0.58

Revenue Growth17.67%

EPS Growth128.48%

CountryUS

EmployeesN/A

SectorFinancial

Sector Strength82

IndustryAsset Management

Share Statistics

EPS (TTM)1.79

Shares Outstanding27,519,506

10 Day Avg. Volume257,625

30 Day Avg. Volume258,181

Financial Highlights & Ratios

PEG Ratio0.05

Price to Book (P/B)N/A

Price to Sales (P/S)21.85

Price to Cash Flow (P/CF)-3.10

P/FCF Ratio0.00

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$13.00

Price Target Upside11.21% Upside

Rating ConsensusHold

Number of Analyst Covering1

Stellus Capital Business Overview & Revenue Model

Company DescriptionStellus Capital Investment Corporation is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund prefers to invest in US and Canada. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.

How the Company Makes MoneyStellus Capital makes money through interest income and capital gains generated from its investment portfolio. The company primarily invests in debt and equity securities of middle-market companies, earning interest from loans and potentially benefiting from the appreciation of equity investments. Stellus Capital may also generate fees from managing investment funds and forming strategic partnerships that expand its investment network and enhance deal flow. By leveraging its expertise in credit analysis and risk management, Stellus Capital aims to achieve attractive risk-adjusted returns for its shareholders.

Stellus Capital Financial Statement Overview

Summary

Stellus Capital exhibits growth potential with revenue increases but faces challenges with profitability and cash flow. The company's high leverage and inconsistent income generation may hinder stability. Improvements in cost management and cash flow optimization are crucial.

Income Statement

Positive

The income statement shows a volatile revenue trend with a significant increase in the latest year, but consistent profitability issues as indicated by zero net income for the latest period. Gross profit margins were healthy in previous years, with EBIT margins showing strength but no EBITDA data available. Revenue growth has been inconsistent year-over-year.

Balance Sheet

Positive

The balance sheet reveals a high level of debt with a debt-to-equity ratio of approximately 1.14 for 2023. Stockholders' equity has grown over the years, indicating capital accumulation. However, the equity ratio stands at around 35%, suggesting moderate leverage. Return on equity has fluctuated, with a ROE of 5.48% in 2023, reflecting modest efficiency in using equity to generate profits.

Cash Flow

Neutral

Cash flow statements indicate negative free cash flow and operating cash flow, reflecting cash management challenges. There is no data on free cash flow growth or its relation to net income due to missing values. The company shows reliance on financing activities, which may pose risks in maintaining liquidity.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
104.74B	105.85M	20.95M	42.66M	25.88M
	Gross Profit
104.74B	21.23M	19.14M	21.47M	10.56M
	EBIT
40.10B	75.25M	54.22M	37.12M	21.19M
	EBITDA
0.00	0.00	69.24M	0.00	46.53M
	Net Income Common Stockholders
45.84M	17.53M	14.49M	33.57M	20.19M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
20.06B	26.13M	892.78M	44.17M	18.48M
	Total Assets
980.90B	908.09M	898.18M	821.26M	674.91M
	Total Debt
420.70B	575.83M	604.13M	518.17M	393.20M
	Net Debt
400.64B	549.71M	556.09M	474.00M	374.73M
	Total Liabilities
610.98B	588.15M	622.41M	536.15M	401.55M
	Stockholders Equity
369.92B	319.94M	275.78M	285.11M	273.36M
Cash Flow		Free Cash Flow
-28.65M	-17.27M	-56.29M	-76.10M	-3.49M
	Operating Cash Flow
-28.65M	-17.27M	-56.29M	-76.10M	-3.49M
	Investing Cash Flow
0.00	0.00	-83.46T	-99.64B	-23.38B
	Financing Cash Flow
22.58M	-4.65M	60.16M	101.80M	5.83M

Stellus Capital Technical Analysis

Technical Analysis Sentiment

Negative

Last Price11.69

Price Trends

50DMA

14.31

Negative

100DMA

13.82

Negative

200DMA

13.39

Negative

Market Momentum

MACD

-0.07

Negative

RSI

43.56

Neutral

STOCH

14.60

Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For SCM, the sentiment is Negative. The current price of 11.69 is below the 20-day moving average (MA) of 13.83, below the 50-day MA of 14.31, and below the 200-day MA of 13.39, indicating a bearish trend. The MACD of -0.07 indicates Negative momentum. The RSI at 43.56 is Neutral, neither overbought nor oversold. The STOCH value of 14.60 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for SCM.

Stellus Capital Risk Analysis

Stellus Capital disclosed 92 risk factors in its most recent earnings report. Stellus Capital reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Stellus Capital Peers Comparison

Overall Rating

UnderperformOutperform

Sector (64)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
ARCC	76 Outperform	$13.22B	7.92	12.40%	9.94%	19.95%	-10.57%
MAIN	74 Outperform	$4.56B	8.80	19.26%	5.96%	51.80%	12.05%
GSBD	72 Outperform	$1.24B	19.32	3.96%	16.62%	-28.04%	-69.52%
SCM	67 Neutral	$326.66M	6.63	13.29%	13.48%	17.67%	128.48%
Sector *	64 Neutral	$12.70B	9.08	9.19%	4.89%	16.29%	-8.64%
TCPC	58 Neutral	$602.35M	―	-8.57%	19.30%	8.24%	-207.60%
PNNT	52 Neutral	$395.69M	24.27	3.28%	15.51%	―	-66.59%

* Financial Sector Average

Performance Comparison

SCM

Stellus Capital

11.69

-0.12

-1.02%

MAIN

Main Street Capital

49.15

4.87

11.00%

PNNT

Pennantpark Investment

5.91

-0.17

-2.80%

ARCC

Ares Capital

18.91

0.17

0.91%

TCPC

BlackRock TCP Capital

6.47

-2.23

-25.63%

GSBD

Goldman Sachs BDC

9.85

-3.26

-24.87%

Stellus Capital Earnings Call Summary

Earnings Call Date: Mar 4, 2025 | % Change Since: -21.91% | Next Earnings Date: May 7, 2025

Earnings Call Sentiment Neutral

The earnings call reflects a balanced view with significant achievements such as reaching a record portfolio size and maintaining dividend levels. However, challenges like a decline in net asset value, nonaccrual loans, and potential tariff risks present concerns. The sentiment is thus neutral, as positive growth is tempered by these challenges.

Highlights

Record Portfolio Size

The portfolio reached $1 billion for the first time in the company's history, indicating significant growth.

Equity Realizations

The company realized equity gains of $5.5 million in the fourth quarter and expects $4 million to $5 million in equity gains by June 30, 2025.

Dividend Sustainability

The company declared a dividend for the first quarter of 2025 at a rate of $0.40 per share, with expectations to maintain this level throughout the year.

Strong Origination Activity

Invested $76.5 million in nine new and portfolio companies during the fourth quarter, indicating robust investment activity.

Lowlights

Net Asset Value Decline

Net asset value per share decreased by $0.09 during the quarter due to net unrealized depreciation on the investment portfolio.

Nonaccrual Loans

Loans to seven portfolio companies are on nonaccrual, comprising 5.4% of the fair value of the total loan portfolio.

Dividend Coverage Concerns

First quarter earnings are not expected to fully cover the dividend, with a shortfall anticipated to continue throughout the year.

Potential Tariff and Government-Related Risks

Concerns about potential impacts from tariffs and government-related activities, with up to 10% of the portfolio potentially affected, though the impact is not expected to be material.

Company Guidance

During the conference call, Stellus Capital Investment Corporation provided detailed financial guidance and performance metrics for its fourth fiscal quarter ending December 31, 2024. The company reported a GAAP net investment income of $0.35 per share and core net investment income of $0.37 per share, excluding estimated excise taxes. The net asset value per share decreased by $0.09 due to net unrealized depreciation and reduction of spillover income, offset by net realized gains. The investment portfolio increased to $953.5 million across 105 companies. New investments totaled $76.5 million, and the company received $46.9 million in repayments. Stellus Capital's current portfolio includes 98% secured loans and 95% floating rate loans, with average loan size per company at $9.5 million. The company's leverage remains conservative, and it declared a $0.40 per share dividend for the first quarter of 2025, expected to continue throughout the year. Realized equity gains were $5.5 million in the fourth quarter, with further gains anticipated in 2025. The company also plans to maintain its leverage at a target of one-to-one and is progressing towards obtaining a third SBA license.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.