Ares Capital Slips 10.4% in 6 Months: Should You Still Buy the Stock?

Core Viewpoint - Ares Capital Corporation (ARCC) has underperformed in the stock market, with a 10.4% decline over the past six months, compared to a broader industry decline of 11.6% and the S&P 500 Index's growth of 11.5% [1][7]. Performance Analysis - ARCC's stock has lagged behind its peers, Amalgamated Financial Corp. (AMAL) and Hercules Capital, Inc. (HTGC), with AMAL increasing by 27.8% and HTGC decreasing by 2.2% in the same period [1]. - The decline in ARCC's share price is primarily attributed to interest rate cuts, which have compressed yields on floating-rate loans, negatively impacting investor sentiment [3][7]. Financial Metrics - In 2024, Ares Capital originated $15.08 billion in gross investment commitments, a significant increase from $6 billion in 2023 and $9.9 billion in 2022 [8]. - The fair value of Ares Capital's portfolio investments was reported at $28.7 billion as of September 30, 2025, with a net asset value of $20.01 per share [10]. - Total investment income has shown a five-year compound annual growth rate (CAGR) of 14.4% from 2019 to 2024, continuing to rise in the first nine months of 2025 [11]. Revenue Projections - The Zacks Consensus Estimate for ARCC's revenues in 2025 and 2026 is $3.06 billion and $3.20 billion, respectively, indicating year-over-year growth rates of 2.3% and 4.7% [12]. - Current quarter and next quarter revenue estimates are $795.35 million and $784.24 million, respectively, with year-over-year growth estimates of 4.79% and 7.14% [13]. Capital Management - Ares Capital has a solid balance sheet with $15.6 billion in debt and $1.3 billion in cash and cash equivalents, along with a revolving credit facility of up to $5.5 million [14]. - The company distributes approximately 90% of its taxable income as dividends, having announced multiple dividend hikes since 2021 [14][15]. Investor Sentiment - Analysts have shown cautious sentiment regarding Ares Capital's earnings growth prospects, with no changes in the Zacks Consensus Estimate for 2025 and 2026 earnings [16]. - The estimated earnings for 2025 and 2026 imply year-over-year declines of 14.2% and 2.2%, respectively [17]. Valuation - Ares Capital's price-to-book (P/B) ratio stands at 1.02X, higher than the industry's 0.87X, indicating that the stock is trading at a premium [22].