Main Street Capital Brief Thoughts and Valuations

Main Street Capital (MAIN) is the final company I have not talked about yet that I still own from before doing any type of valuations or anywhere near the amount of research I am doing now.

Main Street Capital is a business development company that provides long term debt and equity capital to lower middle market companies and debt capital to middle market companies.  Main Street seeks to partner with entrepreneurs, business owners, and management teams and generally provides “one-stop” financing within its lower middle market portfolio.  Main Street’s lower middle market companies generally have revenues between $10 million and $150 million.  Main Street’s middle market debt investments are made in businesses that are generally smaller in size than its lower middle market portfolio companies.  Description taken from its website here.

My reasons for originally buying into Main Street were its high margins, and its monthly and growing dividend.  I liked that it had seemed to find a niche in its business operations that made the company highly profitable, enabling it to pay out the dividends.  I also liked that around 90% of its investments in the companies it invests, in is first lien debt, meaning that if these companies do have any problems, that MAIN still has a very good chance of making its money back.  I also liked that only around 2.5% of its portfolio at that time was thought to be problematic.

What I see now are generally the same fantastic things about this company that is now up 50% since I bought into it, again fortunate due to not valuing the company.  My current cost basis is $19.03 per share and the current share price is $29.09 per share.  MAIN has recently been setting new 52 week highs on almost a daily basis.  The company seems to very well run and reports bigger profits on almost a quarterly basis.

Price to Book and Tangible Book Valuations

  • Low estimate is $16.30 per share.
  • Base estimate is $23.81 per share.
  • High estimate is $31.45 per share.

My concerns with MAIN now is that it appears to be overvalued, it has been recommended by Jim Cramer, and even though the company appears to be overvalued it keeps climbing higher and higher on almost a daily basis.

With my low cost basis in relation to current price, I am going to hold MAIN in my portfolio and hope to continue to collect and reinvest the dividends for the time being.  I am going to watch this company very closely as I like its prospects into the future, but if I see any kind of deterioration in the business, I am going to lock in my profits and sell my position.

Main Street Capital could be a very good long term dividend growth stock if it can keep making prudent and profitable investments but I would not recommend buying into the company at this time as I think MAIN is overvalued.  As with the last several companies I talked about, I hope MAIN can keep on its current path and I hope to have my investment compound well into the future.

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