A Look at Prospect Capital’s Discounted Valuations

PE ratio

The PE ratio for Prospect Capital (PSEC) is 8.97x on an NTM (next-12-month) basis, which implies its discounted valuation since the peer average is 9.61x. Prospect’s competitors Ares Capital (ARCC), Apollo Investment (AINV), and FS Investment (FSIC) have PE ratios of 10.16x, 8.69x, and 9.99x, respectively, on an NTM basis.

A Look at Prospect Capital’s Discounted Valuations

Prospect Capital saw its net investment income decline sequentially in its fiscal third quarter. In addition, its NAV (net asset value) per share was $9.23 at the end of the quarter, which represents a sequential decline.

What lies ahead for Prospect Capital?

In the fiscal third quarter of 2018, Prospect Capital’s originations declined substantially on a sequential basis. Its originations are sensitive to changes in interest rates. In its June meeting, the Fed hinted that it would be raising interest rates at a faster pace. If that happens, Prospect’s originations are expected to be impacted negatively. However, fears regarding trade wars between China and the United States might result in a slower pace for rate hikes. Higher rates raise Prospect Capital’s cost of capital, which impacts its origination capabilities.

Prospect Capital has a PE ratio of 10.44x on an LTM (last-12-month) basis. Its competitors (XLF) Ares Capital (ARCC), Apollo Investment (AINV) and FS Investment (FSIC) have PE ratios of 9.02x, 13.96x, and 14.01x, respectively, on an LTM basis.