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OFS Capital (OFS)
NASDAQ:OFS
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OFS Capital (OFS) AI Stock Analysis

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OFS

OFS Capital

(NASDAQ:OFS)

Rating:70Outperform
Price Target:
OFS Capital's overall stock score reflects a strong financial foundation with high profitability and attractive valuation metrics. However, concerns about declining revenue, cash flow issues, and economic uncertainties weigh on the score. The stock's upward technical momentum and high dividend yield provide potential for returns, balancing the challenges highlighted in the earnings call.

OFS Capital (OFS) vs. SPDR S&P 500 ETF (SPY)

OFS Capital Business Overview & Revenue Model

Company DescriptionOFS Capital Corporation is a business development company specializing in direct and fund investments as well as add-on acquisitions. It provides flexible capital solutions primarily through debt capital and to a lesser extent, minority equity investments serving the needs of U.S.-based middle-market companies across a broad array of industries. It does not invest in operational turnarounds or start-up businesses. For direct, it specializes in debt and structured equity investments, recapitalizations and refinancing, management and leveraged buyouts, acquisition financings, shareholder liquidity events, growth capital, independent sponsor transactions, ESOPs, and minority investments in the lower middle market companies. It invests in the aerospace and defense, business services, consumer products and services, food and beverage, health care services, specialty chemicals, transportation and logistics, value added distribution, franchising, and industrial and niche manufacturing sectors. The firm invests in companies based in United States. It seeks to invest between $5 million and $35 million, revenues between $10 million and $200 million, annual EBITDA more than $5 million, and Enterprise value between $10 million and $500 million. The firm seeks to invest in companies with debt investment values between $5 million and $25 million. The fund uses senior secured, unitranche loans, first-lien, second-lien, subordinated/ mezzanine loans, warrants, and preferred equity securities and common equity securities. It prefers to take a minority as well as majority stake in the investments made. It also co-invests with its partners for additional capital.
How the Company Makes MoneyOFS Capital makes money primarily through the interest income it earns on its debt investments, which include senior secured loans and subordinated loans extended to middle-market companies. The company also generates revenue from dividends and capital gains on its equity investments. Additionally, OFS benefits from fee income related to its investment activities, such as origination fees, amendment fees, and prepayment fees. These revenue streams are complemented by its strategic partnerships and relationships within the financial industry, which facilitate deal sourcing and investment opportunities.

OFS Capital Earnings Call Summary

Earnings Call Date:Jul 31, 2025
(Q2-2025)
|
% Change Since: -2.24%|
Next Earnings Date:Oct 31, 2025
Earnings Call Sentiment Neutral
The earnings call highlighted a stable credit portfolio, successful bond offering, and maintenance of quarterly distribution, indicating strength in core operations. However, challenges such as the decline in net asset value, unrealized depreciation in equity investments, and increased expenses suggest some financial pressures. Overall, the sentiment reflects a cautious optimism amidst macroeconomic uncertainty.
Q2-2025 Updates
Positive Updates
Stable Credit Portfolio
The health of the credit portfolio remained stable with no new nonaccruals reported in the quarter.
Successful Bond Offering
Completed a $69 million unsecured note offering with a 7.5% coupon maturing in July 2028, allowing for refinancing of existing notes and providing operational flexibility.
Increase in Total Investment Income
Total investment income increased by approximately 2% to $10.5 million this quarter, driven by nonrecurring fee income and improved loan portfolio yield.
Strong Position in Senior Secured Loans
100% of the loan portfolio was in senior secured positions at the end of the quarter, with 85% in first lien positions based on fair value.
Maintenance of Quarterly Distribution
Maintained the quarterly distribution at $0.34 per share, representing a 16.1% annualized yield based on the market price of the stock.
Negative Updates
Net Asset Value Decline
Net asset value per share decreased by approximately 9% or $1.06 this quarter, primarily due to net unrealized depreciation on the investment portfolio.
Unrealized Depreciation in Equity Investments
Notable $7.8 million unrealized depreciation on the equity investment in Pfanstiehl, impacting overall portfolio value.
Increase in Expenses
Total expenses increased by approximately 5% during the period to $7.2 million, contributing to a slight decline in net investment income.
Subdued M&A Activity
M&A activity remained subdued for the year, with expectations of continued impact from macroeconomic uncertainty, leading to cautious capital deployment.
Company Guidance
During the OFS Capital Corporation Second Quarter 2025 Earnings Conference Call, the company provided several key metrics and guidance for the future. The net investment income was reported at $0.25 per share, slightly down from $0.26 per share in the previous quarter. The net asset value per share decreased to $10.91 from $11.97, largely due to a $7.8 million decline in the value of equity investments in Pfanstiehl Holdings. The portfolio remained stable with no new nonaccruals, and the investment income yield on the interest-bearing portion of the portfolio increased to 13.6%. OFS Capital completed a $69 million unsecured note offering with a 7.5% coupon, aimed at refinancing $125 million in unsecured notes maturing in February 2026. The company maintained its quarterly distribution at $0.34 per share, representing a 16.1% annualized yield. The call highlighted the company's focus on monetizing noninterest-earning equity positions to improve net investment income and managing debt maturities to maintain operational flexibility amidst macroeconomic uncertainties.

OFS Capital Financial Statement Overview

Summary
OFS Capital demonstrates strong profitability and efficient management with high margins and good equity returns. However, declining revenue and free cash flow raise concerns about future growth prospects. The balance sheet reflects prudent financial management with moderate leverage, although asset decline is a potential risk. Overall, the company is financially stable but must address revenue and cash flow challenges to sustain long-term growth.
Income Statement
65
Positive
The TTM (Trailing-Twelve-Months) data shows a strong gross profit margin of 87.16% and a solid net profit margin of 87.54%, indicating efficient cost management and profitability. However, the revenue growth rate is negative, suggesting declining sales compared to previous years. The EBIT margin is robust at 101.10%, reflecting effective operational control. Overall, while profitability metrics are strong, declining revenue is a concern.
Balance Sheet
70
Positive
The company's debt-to-equity ratio is 0.42, which is relatively low and indicates moderate leverage. Return on Equity (ROE) is high at 23.37%, showing effective use of shareholders' equity to generate profit. The equity ratio of 38.93% suggests a healthy proportion of equity financing. The balance sheet is stable with good profitability and manageable debt levels, though a decrease in total assets over time could be a risk.
Cash Flow
60
Neutral
The free cash flow growth rate is negative, indicating a decline in free cash flow from previous periods. Operating cash flow to net income ratio is 0.63, which suggests that operating cash flow is lower than net income, potentially indicating issues with cash conversion. Free cash flow to net income ratio is 0.63 as well, highlighting the need for improved cash flow management. Cash flow is stable but shows signs of potential strain.
BreakdownTTMDec 2024Dec 2023Dec 2022Dec 2021Dec 2020
Income Statement
Total Revenue34.27M49.52M45.59M46.26M68.23M10.33M
Gross Profit21.08M32.88M31.24M35.77M54.31M-918.00K
EBITDA17.96M28.51M40.05M35.79M80.11M0.00
Net Income10.24M28.44M-465.00K-7.74M56.86M3.69M
Balance Sheet
Total Assets395.44M428.12M469.82M520.72M569.05M483.81M
Cash, Cash Equivalents and Short-Term Investments10.24M6.07M45.35M515.51K43.05M37.71M
Total Debt242.20M68.35M299.73M331.75M344.81M309.19M
Total Liabilities249.25M255.90M307.81M340.29M365.30M324.86M
Stockholders Equity146.20M172.22M162.00M180.42M203.74M158.96M
Cash Flow
Free Cash Flow33.14M33.01M81.57M2.95M-12.01M80.63M
Operating Cash Flow33.14M33.01M81.57M2.95M-12.01M80.63M
Investing Cash Flow2.77M0.000.00-107.55M-216.11M-59.63M
Financing Cash Flow-23.92M-72.29M-51.15M-31.06M17.35M-56.36M

OFS Capital Technical Analysis

Technical Analysis Sentiment
Negative
Last Price8.29
Price Trends
50DMA
8.42
Negative
100DMA
8.41
Negative
200DMA
7.96
Positive
Market Momentum
MACD
-0.05
Positive
RSI
43.91
Neutral
STOCH
24.49
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For OFS, the sentiment is Negative. The current price of 8.29 is below the 20-day moving average (MA) of 8.45, below the 50-day MA of 8.42, and above the 200-day MA of 7.96, indicating a neutral trend. The MACD of -0.05 indicates Positive momentum. The RSI at 43.91 is Neutral, neither overbought nor oversold. The STOCH value of 24.49 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for OFS.

OFS Capital Risk Analysis

OFS Capital disclosed 2 risk factors in its most recent earnings report. OFS 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

OFS Capital Peers Comparison

Overall Rating
UnderperformOutperform
Sector (62)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
70
Outperform
$111.20M10.856.82%16.39%-49.04%
69
Neutral
$136.50M19.383.63%15.87%127.09%2519.30%
62
Neutral
AU$10.22B9.2711.82%5.04%33.79%41.40%
51
Neutral
$174.86M589.74-0.32%18.26%-338.17%-97.99%
48
Neutral
$161.41M41.01-5.47%19.53%-37.27%-153.39%
48
Neutral
$126.70M26.5913.18%13.12%32.38%-90.38%
45
Neutral
$194.77M-9.96%3.02%90.08%-893.47%
* Financial Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
OFS
OFS Capital
8.29
1.27
18.09%
PTMN
Portman Ridge Finance
12.14
-4.15
-25.48%
SSSS
SuRo Capital
8.49
4.80
130.08%
OXSQ
Oxford Square Capital
2.35
-0.19
-7.48%
MRCC
Monroe Capital
6.20
-0.08
-1.27%
GECC
Great Elm Capital
11.00
2.02
22.49%

OFS Capital Corporate Events

Executive/Board Changes
OFS Capital Announces CFO Transition in 2025
Neutral
Jan 29, 2025

On January 28, 2025, Jeffrey A. Cerny announced his resignation as Chief Financial Officer and Treasurer of OFS Capital Corporation, effective March 31, 2025, without any disagreements related to company operations. Kyle Spina, with over 15 years of experience in accounting, will replace him as CFO and Treasurer, bringing extensive expertise from his previous roles, enhancing the company’s financial leadership.

Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

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.Date of analysis: May 04, 2025