Prospect Capital Corporation's (NASDAQ:PSEC) latest earnings release didn’t do much to improve investor sentiment toward the stock. It remains mired in trading range and sits at barely 70% of book value.
PSEC has long been accused of being a little more aggressive than its peers in valuing its assets. But even so, at these levels it is safe to say that Prospect is trading at a deep discount to the value of its underlying portfolio.
We all know it’s a tough market for business development companies. Funding costs are rising at a time when yields on investment are falling due to a glut of capital in the space.
So, here’s a novel idea for management: Halt all new investment and instead plow the proceeds into share repurchases.
I’m not joking. Prospect shares yield 11% at current prices, which is about in line with its new originations. But it also trades at a 28% discount to book value and is diversified. So why accept the risk of a new origination if you can simply reinvest in your own shares and be done?
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