Main Street Capital stock price did modestly well this year as other companies in the business development companies (BDC) industry accelerated.
Main Street Capital beat other BDCs this year
It had a total return of 8.9% this year, while the closely-watched VanEck BDC Income ETF (BIZD), which tracks the biggest companies in the industry, dropped by 5.9%.
Main Street Capital vs BIZD vs VOO | Source: Seeking Alpha
Main Street Capital stands out because of its premium to NAV, which has jumped to 80% much higher than of other BDCs by companies like Prospect Capital, Blue Owl, Goldman Sachs, New Mountain, and Oaktree, which are all trading with negative NAV multiples.
While Main Street Capital stock has largely avoided the turmoil that has happened in the industry, it has pulled back in the past few months, moving from the year-to-date high of $66 in August to the current $59.
The ongoing weakness in the BDC industry has occurred as the Federal Reserve has started cutting interest rates. This trend will continue in the coming year as Donald Trump replaces Jerome Powell with a more accommodative central bank governor.
BDC companies face a major challenge in a low-interest environment because they specialize in making loans to other companies, especially those with junk credit ratings.
The crisis then escalated in the summer when a $14 billion fund managed by KKR published weak financial results as some of its loans backfired. Today, FS KKR trades at a 35% discount to its NAV, with its dividend yield soaring to 19%, much higher than Main Street Capital’s 7.18%.
The crisis then escalated as the issues at Blue Owl came to light. This crisis started when Blue Owl announced a plan to merge one of its private funds with another publicly traded one, a move that would have negatively impacted investors in its private fund.
Main Street Capital business is doing much better than other BDCs
The most recent results showed that Main Street Capital’s business was doing relatively well.
These numbers showed that its interest income dropped to $103.28 million in the last quarter from the $110 million it made in the same period last year as interest rates declined.
At the same time, its dividend income rose to over $31.2 million, which helped to push its total investment income to $139.8 million from the previous $136 million. Its total investment income before taxes rose to $86 million.
The company also has a solid balance sheet, with over $5.2 billion in total assets and $2.3 billion in total liabilities, numbers that have helped it beat other companies in the industry.
Also, unlike other companies, Main Street Capital’s business is internally managed, meaning that it does not need to pay external management fees. This is unlike other popular BDC companies that pay external managers. As a result, its operating expenses are at or less than 2% of the assets.
Main Street Capital stock price technical analysis
MAIN stock chart | Source: TradingView
The daily timeframe chart shows that the MAIN stock price formed a double-bottom pattern at $54.50 and rebounded. It then rebounded to a high of $62.82 and is now about to retest the neckline at $59. A break-and-retest is one of the most common bullish continuation patterns in technical analysis.
The stock has remained between the 23.6% and 38.2% Fibonacci Retracement levels. It has remained above the 50-day and 100-day moving averages.
Therefore, the break-and-retest pattern points to more upside in the coming weeks. Such a move will push it to the December high of $62.82. Crossing that resistance level will point to more gains, potentially to the year-to-date high of $66.
READ MORE: Main Street Capital stock: beating BDCs and S&P 500, but there’s a catch
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