CSWC

We rate CAPITAL SOUTHWEST CORP (CSWC) as a Hold with a composite score of 50.5/100 at a current price of $22.57. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in momentum (93th percentile) and stability (64th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (23th percentile) and quality (29th percentile) tempers our overall conviction. We assign a No Moat rating (28/100), High uncertainty, and Standard capital allocation.

Key items to watch: balance sheet deleveraging progress; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

CAPITAL SOUTHWEST CORP holds a top-quartile position (#7 of 38) within the Financial sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 50.5/100 places it at rank #1928 in our full 7,333-stock universe. At $1.3B in market capitalization, CAPITAL SOUTHWEST CORP is a small-cap player in the Financial space, which limits certain scale advantages but may allow for more agile strategic execution.

The near-term outlook is constructive, with revenue growing at 105% and momentum in the 93th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 23th percentile indicates reinvestment patterns that investors should monitor for sustainability.

Available margin data shows operating margins of 52%. Incomplete margin data limits our ability to fully assess the cost structure and margin trajectory, though the available metrics provide a partial view of operating efficiency.

At a current price of $22.57, CAPITAL SOUTHWEST CORP is trading at a premium to fundamental value. Our value factor score of 36/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 11.6x (roughly in line with the sector median of 9.8x), EV/EBITDA of 75.7x (at a premium), P/B of 1.4x, P/S of 8.4x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to CAPITAL SOUTHWEST CORP. Key risk factors include significant leverage (108% debt-to-equity), weak quality scores (29th percentile). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (108% debt-to-equity); weak quality scores (29th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 64th percentile and quality factor at the 29th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (64th percentile) suggests predictable business dynamics; a 11.66% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate CAPITAL SOUTHWEST CORP's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 11.9%, and the balance sheet is managed within acceptable parameters (D/E: 108%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; CAPITAL SOUTHWEST CORP falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 11.66% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, CAPITAL SOUTHWEST CORP receives a Hold rating with a composite score of 50.5/100 (rank #1928 of 7,333). Our quantitative framework assigns a No Moat (28/100, trend: stable), High uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 49/100.

Our analysis supports a neutral stance on CAPITAL SOUTHWEST CORP. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.