Over the past six months, Main Street Capital’s stock price fell to $53.23. Shareholders have lost 17.1% of their capital, which is disappointing considering the S&P 500 has climbed by 8.2%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Main Street Capital, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Main Street Capital Not Exciting?
Even with the cheaper entry price, we’re sitting this one out for now. Here are three reasons we avoid MAIN, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within financials, a stretched historical view may miss recent interest rate changes, market returns, and industry trends. Main Street Capital’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 5.5% over the last two years was well below its five-year trend. 
Note: Quarters not shown were determined to be outliers because they were impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Main Street Capital, its EPS declined by 3% annually over the last two years while its revenue grew by 5.5%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Substandard TBVPS Growth Indicates Limited Asset Expansion
Tangible book value per share (TBVPS) is a crucial metric that measures the actual value of shareholders’ equity, stripping out goodwill and other intangible assets that may not be recoverable in a worst-case scenario.
Although Main Street Capital’s TBVPS increased by 8.1% annually over the last five years, growth has recently decelerated a bit to a mediocre 6.4% over the past two years (from $29.55 to $33.46 per share).
Final Judgment
Main Street Capital isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 13.7× forward P/E (or $53.23 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
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