Is Gladstone Investment Stock A Buy?

As it turns out, there are plenty of investment companies looking to do the same thing. They’re called investment funds, and they have an enormous appeal among investors new and old alike because they offer a broad selection of promising investment opportunities complete with management expertise and much lower investment fees than investors would face if they went at it alone. Gladstone Investment, or GAIN, is one such investment fund.

What Does GAIN Do?

Gladstone Investment — and Gladstone Companies on the whole — aims to provide financing for and possession of lower middle market companies, acquires commercial real estate and farmland throughout the United States, and also distributes monthly cash payments to its shareholders.

It’s also responsible for all sorts of notable buyouts as of late, including companies and products such as Brunswick, Funko, and Head Country Bar-B-Q.

Founded back in 2005, the private equity fund known as Gladstone Investment has been providing equity as well as debt capital for over 15 years now.

It focuses solely on mature companies within the lower middle market, the hope being that these companies have stood the test of time and, as such, will make a sound investment or acquisition. This also increases the chances of closing quickly, and provides those alluring monthly dividends and potential capital gains as well.

GAIN Revenues and Earnings Forecasts

Despite sounding promising on the whole, Gladstone Investment has had some rocky earnings reports as of late.

The numbers speak for themselves. GAIN’s revenue was on the up-and-up in 2019 and 2020, rising from $65 million to $69 million over the course of the two calendar years. But, at the culmination of its most recent fiscal year in March of 2021, its annual revenue had dropped to $62 million. This is a pretty significant drop, and one that shouldn’t be ignored.

As a result of this drop, GAIN’s earnings forecast predicts a continued drop. Analysts predict a further decrease in earnings for the next two quarters, then an eventual turnaround in the third quarter of 2021.

Its next earnings announcement is slated for July 27 of 2021, so only time will tell if these predictions will come true or not, but they aren’t that outlandish whatsoever — GAIN’s earnings are down, and there’s nothing to indicate that this suddenly won’t be the case for the next quarter or two.

Can GAIN Flip The Script To Find Winners Again?

Gladstone Investment saw a lot of success with its strategy of investing in the lower middle market, but that was before the onset of the Coronavirus. In the wake of COVID-19, the very companies that once made GAIN a hit on the stock market suddenly became extremely risky investments.

Brunswick, Funko, even companies like CCE Golf Carts… these businesses fell by the wayside as the virus boomed because they weren’t exactly necessities for people under lockdown. As such, Gladstone Investment faced some trouble in 2020 that it couldn’t have anticipated beforehand.

Going forward, GAIN is going to have to consider which of these lower middle market companies could prove to be recession-proof going forward and adjust its portfolio accordingly. Otherwise, it may continue to face declining revenues and troublesome earnings forecasts. This is undoubtedly the biggest risk associated with Gladstone Investment, and one retail investors and traders should seriously take into consideration.

Is GAIN Valuation Fair?

Despite the risk associated with Gladstone Investment stock and the troublesome revenue and earnings forecast, GAIN’s market cap continues to rise with its price per share.

Through everything, GAIN’s market cap has risen from just under $260 million in March of 2020 to over $480 million as of late. All things considered, this is surprising (to say the least). It seems like a valuation that’s too high, given the facts.

Alas, it’s a reasonably fair representation of GAIN’s continued gains on the New York Stock Exchange. Since its founding, Gladstone Investment share price has gone full circle from $15 a share in 2005 down to under $2.50 a share in 2009 all the way back up to nearly $15 today.

This surprisingly high price represents the steady rise of GAIN’s price per share over the past decade or so, but it remains to be seen: Will GAIN surpass its previous high of over $15, or will it soon plateau? 

Based on a discounted cash flow forecast analysis, the fair market value for GAIN share price is $13.50.

Is GAIN Stock A Buy? The Bottom Line

Given the risks associated with Gladstone Investment and the poor revenues and earnings forecasts for the coming months, it seems quite clear that GAIN is a SELL right now.

That’s not to say that the company couldn’t see a turnaround a few quarters from now, but with so many analysts predicting further decreases in revenue and earnings, better alternatives to GAIN exist now (and if you currently own stock in Gladstone Investment, it might be wise to sell now before the predicted drop in revenue for the next quarter sparks a potential share price decline.

While it might not be worth buying right now, keep an eye on GAIN — especially in the wake of its upcoming earnings announcement at the end of July of 2021.

The price per share in GAIN has continued to grow exponentially since October of 2020, and, depending on how its next couple of quarters turn out, growth may resume in a hurry. For now, with GAIN stock price sitting around $14,  sit back and watch where Gladstone Investment goes — it’s not a buy right now, but it could be in the future.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.