Saratoga Investment Corp. (SAR) Analysis
Estimated reading time: 7 minutes
Key Takeaways
- Saratoga Investment Corp. (SAR) is a business development company (BDC) with a market cap of $340–$358 million.[2]
- The company offers a high dividend yield of approximately 13%, but the dividend payout ratio exceeds 100%, raising sustainability concerns.[3]
- Valuation metrics suggest potential undervaluation, with an intrinsic value estimate of $46.23 compared to the current price around $25.[1]
- SAR has a high debt/equity ratio of 219.8%, indicating significant leverage and exposure to interest rate risks.[3]
- Analysts have a consensus rating of “Buy,” but price targets are close to the current market price, suggesting limited expected upside.[5]
Table of Contents
- Saratoga Investment Corp. (SAR) Analysis
- Key Takeaways
- Fundamental Analysis
- Intermarket and Commodity Correlation
- Sector and Industry Analysis
- Float, Shares Outstanding, and Short Interest
- Valuation and Analyst Consensus
- Conclusion
- Frequently Asked Questions
- References
Fundamental Analysis
Key Financial Metrics:
- Market Cap: $340–$358 million[2][5]
- Enterprise Value: $1.02 billion[5]
- Revenue (TTM): $154.79 million[2][3]
- Net Income (TTM): $34.07 million[2][4]
- EPS (TTM): $2.49[2]
- PE Ratio: 9.54–10.06 (trailing), Forward PE: 7.78–8.21[2][5]
- Price to Book: 0.86[5]
- Dividend Yield: ~13% ($3.32/share)[2][3]
- Dividend Payout Ratio: 119%[3]
- Debt/Equity Ratio: 219.8%[3]
Saratoga covers a niche in business development, providing leveraged and management buyouts, financing, and related services—primarily through debt and hybrid investment structures[2]. The profitability metrics (Net Margin ~22%, 100% gross margin[3]) and high, but manageable, payout ratio indicate an income-oriented approach typical for business development companies (BDCs).
Intermarket and Commodity Correlation
SAR, as a BDC, is generally correlated with the health of the credit markets and the broader capital markets sector. Rising interest rates or instability in fixed-income markets can impact its portfolio yields and risk profiles[2][3]. Though specifics on direct commodity or intermarket correlation are not detailed in the search results, the high yield may make SAR more sensitive to rate movements. The beta is relatively low at 0.72, indicating less volatility than the broader market[2].
Sector and Industry Analysis
Sector: Diversified Financials, Business Development Company (BDC)[2]
Industry Peers: SAR is compared against other BDCs and capital markets firms in the U.S. Over the past year, SAR’s total return has matched the broad market but underperformed the US capital markets industry (SAR: unchanged, Industry: +18.6%)[3]. This suggests sector-specific headwinds or individual performance lags.
Float, Shares Outstanding, and Short Interest
Share Statistics:
- Shares Outstanding: 14.35 million (YoY growth +12%)[2][5]
- Public Float: 12.85 million[5]
- Owned by Insiders: 10.41%, by Institutions: 16.8%[5]
- Short Interest: Not specified, but likely modest due to low institutional ownership and shares outstanding.
Valuation and Analyst Consensus
Valuation:
- Intrinsic Value Estimate: $46.23 (significantly above the market, indicating potential undervaluation)[1]
- Current Price: ~$25
- Analyst Target: $25.08 (flat to current price)[2][5]
- Consensus Rating: Buy[2][5]
Conclusion
Saratoga Investment Corp. (SAR) remains an income-focused BDC with consistent dividend payments and a reasonable valuation multiple relative to earnings and book value[2][3][5]. Its business model and sector position expose it to rate and credit market shifts more than commodity cycles. The current market price is below some intrinsic value estimates, though analyst targets remain close to the present level, perhaps reflecting sector pressures[1][2][5]. Ownership is moderately diversified between insiders and institutions, with a public float of 12.85 million shares and recent share issuance growth[5].
If you need deeper peer comparisons or real-time short interest data, additional specific financial sources or filings would be required.
Frequently Asked Questions
Why is Saratoga Investment Corp.’s dividend payout ratio over 100%?
The dividend payout ratio exceeding 100% indicates that the company is paying out more in dividends than it earns in net income[3]. This is common among BDCs due to regulatory requirements to distribute most of their income but may raise concerns about dividend sustainability.
What risks are associated with SAR’s high debt/equity ratio?
A high debt/equity ratio of 219.8% suggests significant leverage[3]. While leverage can enhance returns, it also increases financial risk, especially in a rising interest rate environment where borrowing costs may increase.
Is SAR undervalued according to intrinsic value estimates?
According to intrinsic value estimates like the one from Simply Wall St., SAR may be undervalued, with an intrinsic value of $46.23 compared to the current price of around $25[1]. However, investors should consider various valuation methods and market conditions.
How does SAR compare to its industry peers?
SAR has underperformed the US capital markets industry over the past year, with its total return being unchanged compared to the industry’s gain of +18.6%[3]. This may indicate sector-specific challenges or company-specific issues affecting performance.
References
About The Author
