Whether at the grocery store or the gas pump, soaring inflation is affecting us all.
In March, the annual rate of inflation was up 8.5% — the highest level it’s been in 40 years.
But consumers aren’t the only ones worried about the price of goods.
Businesses are right there with us because rising costs of goods and services cut into profits. This leaves many companies struggling with their bottom lines.
I’ve found a company that’s here to help.
Using Chief Investment Strategist Adam O’Dell’s proprietary six-factor Stock Power Ratings system, I found a “Strong Bullish” stock that helps businesses when they need it most:
- It provides capital to small and medium-sized companies in the U.S.
- Since hitting a 52-week low in May 2021, this stock has climbed 27% to hit a fresh 52-week high.
- It’s in the top 5% of all stocks we rate.
Here’s why this business development company (BDC) will be a strong performer this year and beyond.
Business Confidence Hits Fresh Low Amid Inflation
The Business Confidence Index tracks how business owners are feeling amid the current economic environment. It uses production metrics to do so.
An index reading above 100 indicates high business confidence, while a reading below 100 is the opposite.
As you can see from the chart above, business confidence in the U.S. has remained above 100 in each of the last 12 months.
However, confidence is sinking as businesses grapple with supply chain issues and higher inflation.
We are dangerously close to passing below 100 for the first time since June 2020 — right in the midst of the COVID-19 pandemic.
A Growth Leader: Gladstone Capital Corp.
When businesses run into economic trouble, they turn to banks or other companies for a quick, reliable source of capital.
But access to bank loans can be extremely limited for small and medium-sized businesses.
Gladstone Capital Corp. (Nasdaq: GLAD) is here to help.
GLAD is a business development company that provides equity and financing options for small and medium-sized companies in the U.S.
In simple terms, Gladstone gives loans or capital in exchange for stakes in companies.
And GLAD’s growth numbers reflect this need for capital services:
The chart above shows the actual and estimated total revenue for GLAD. With the exception of a slight drop in 2020 due to COVID-19, its revenue is trending higher.
By 2023, the company is projected to hit $63.4 million in total annual revenue — a 32% increase from its 2020 numbers.
Now, let’s look at how the stock has performed.
GLAD Reaches Fresh 52-Week High
GLAD has jumped 20.6% over the last 12 months — outperforming its investment services peers, which only average a 1.6% gain in the same time.
It’s bounced up 27% from its 52-week low set in May 2021 to a new 52-week high set just last week.
So while the investment services sector has gone down, Gladstone has moved higher.
Gladstone Capital Corp. Stock Rating
Using Adam’s six-factor Stock Power Ratings system, Gladstone Capital Corp. stock scores a 95 overall.
That means we’re “Strong Bullish” on the stock and expect it to beat the broader market by at least three times in the next 12 months.
Gladstone Capital Corp.’s Stock Power Rating on April 18, 2022.
GLAD rates in the green on five of our six rating factors:
- Growth — GLAD has a one-year earnings-per-share (EPS) growth rate of more than 999% and a one-year annual sales growth rate of 45.8%. In the last 12 months, its EPS has jumped 742%, and its sales are up 73.8%. Gladstone scores an 88 on growth.
- Value — Gladstone scores an 86 on value with a price-to-earnings ratio of 4.91 compared to its sector peer average of 35.5. GLAD’s price-to-sales ratio is 5.54, while the investment services sector average is 6.5.
- Volatility — While there has been some up and down movement in the stock, Gladstone took off in March with little resistance and hit a 52-week high last week. GLAD scores an 80 on volatility.
- Size — GLAD’s current market cap is around $418 million — putting it at the lower end of small-cap stocks. (Small-cap stocks have a market cap between $300 million and $2 billion.) Smaller stocks tend to outperform larger stocks with similar ratings on the other five factors of Adam’s system. Gladstone scores a 78 on size.
- Quality — Despite having a lower quality score, Gladstone beats its sector peers in returns on assets, equity and investment (all positive double-digits). It also has an operating margin of 128.7% compared to the investment services sector average of just 37.5%. GLAD scores a 67 on quality.
GLAD earns a ”Neutral” 59 on momentum — mostly due to its sideways trading through most of 2021. However its recent run-up to a new 52-week high should boost that score higher.
Bottom line: Inflation is hammering small to medium-sized businesses.
The costs of necessary goods and services are rising, cutting into profit margins.
These companies are going to turn to business development companies like Gladstone Capital Corp. to help get them through these rough economic times.
It’s why GLAD is a must-have for your portfolio.
Safe trading,
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He’s the host of our podcast, The Bull & The Bear, as well as the Marijuana Market Update. He’s also a certified Capital Markets and Securities Analyst through the Corporate Finance Institute. Before joining the team, he spent 25 years as an investigative journalist and editor — covering everything from politics to business.
