Chasing value while getting a 16 percent yield
Nov 5th 2009 3:30PM
Updated Dec 4th 2009 4:24PM
In sharing my adventures and opinions in the investment world I try very hard to be candid without crossing the line into being a promoter. That said, I have been buying stock regularly over the last 12 months and buying on fear has paid off handsomely. As the market has catapulted upward since March, the opportunities have diminished. However, I did add PSEC in the last month.
Prospect Capital Corp went public in 2004. The company describes itself as primarily providing non-control debt financing to management teams or financial sponsors. In addition, Prospect selectively makes control acquisitions by providing multiple levels of the capital structure. As a yield-oriented company, Prospect seeks investments with historical cash flows, asset collateral, or contracted pro forma cash flows.
The stock has been trading in the $10 range over the last quarter with a 52 week range of $6.18 to $13.00 so it seems to have settled in comfortably between. If you take an average of it's trailing P/E of 9.25 and its projected forward P/E of 7.5 you get an average of 8.37 or about 1/3 of the current Standard & Poors average.
For those that are not intrigued by the P/E ratio, you might get more excited to learn the company has a book value of 0.74, a beta of 0.67, insiders have been buying all year at prices near today's trading range and as hard as it is to believe a profit margin exceeding 57% -- PSEC is at least worth your own further investigation.
I see Prospect Capital as a small cap opportunity fund. I think with so many companies struggling plus lending remaining very tight, PSEC should have plenty of opportunity to reward its shareholders.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of PSEC.