Workflow
Is Ares Capital Stock a Millionaire Maker?
ARCCAres Capital(ARCC) The Motley Fool·2025-03-16 08:20

Core Insights - Ares Capital (ARCC) has delivered a total return of 1,090% since its IPO in 2004, significantly outperforming the S&P 500's total return of 627% during the same period [1][2] - The company primarily provides direct loans to middle-market companies, which typically generate 10millionto10 million to 250 million in EBITDA annually, filling a gap left by traditional banks [2][4] - Ares Capital's portfolio had a fair value of 26.8billionattheendof2024,makingitthelargestBDCglobally[5]CompanyOperations−AresCapitaltakesonmoreriskthantraditionalbanksbyprovidingloansathigherinterestrates,withfloating−rateloanslinkedtotheFederalReserve′sbenchmarkrate[3]−Thecompanyhasexpandeditsbusinessthroughacquisitions,diversifyingitsportfolioacross550companies,with63.826.8 billion at the end of 2024, making it the largest BDC globally [5] Company Operations - Ares Capital takes on more risk than traditional banks by providing loans at higher interest rates, with floating-rate loans linked to the Federal Reserve's benchmark rate [3] - The company has expanded its business through acquisitions, diversifying its portfolio across 550 companies, with 63.8% allocated to first- and second-lien secured loans [4][6] - Ares must pay out at least 90% of its pre-tax profits as dividends, resulting in a forward dividend yield of about 8.8% at its current price [7] Financial Performance - From 2004 to 2024, Ares Capital's net assets per share grew from 14.43 to 19.89,whileitsdebt−to−equityratioincreasedfrom0.38to0.99[6]−AnalystsexpectAres′coreEPStodip719.89, while its debt-to-equity ratio increased from 0.38 to 0.99 [6] - Analysts expect Ares' core EPS to dip 7% to 2.16 per share in 2025, but it should still comfortably cover its dividends [8] - At a stock price of 22,Aresappearstobetradingatroughly10timesthisyear′scoreEPS,indicatingitmaybeundervalued[8]InvestmentOutlook−WhileAresCapitalmaynotturna22, Ares appears to be trading at roughly 10 times this year's core EPS, indicating it may be undervalued [8] Investment Outlook - While Ares Capital may not turn a 10,000 investment into $1 million over the next 20 years, it is still considered a reliable stock that could continue to outperform the market [9]