Over the past six months, Hercules Capital’s stock price fell to $17.50. Shareholders have lost 9.6% of their capital, which is disappointing considering the S&P 500 has climbed by 10.2%. This might have investors contemplating their next move.
Is there a buying opportunity in Hercules Capital, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Hercules Capital Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here is one reason why HTGC doesn't excite us and a stock we'd rather own.
EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Hercules Capital’s EPS grew at an unimpressive 6.5% compounded annual growth rate over the last five years, lower than its 12.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Hercules Capital isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 9.1× forward P/E (or $17.50 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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