Jun. 10 at 4:31 PM
This is bad news for Main Street Capital stock.
$MAIN is down 14% year to date and now has over 10% short interest.
What's interesting is in the recent quarter, MAIN still reported record NAV per share of
$33.46, up roughly 5% year-over-year (quite strong for a BDC).
Normally, that would be a major positive.
But with MAIN, there is an important nuance.
MAIN has historically traded at a large premium to NAV.
When a BDC can issue shares above NAV, it can actually be accretive to existing shareholders.
For example, if NAV is around
$33 per share and the company issues stock near
$50, that issuance can help increase NAV per share.
That is one of MAIN’s biggest structural advantages.
But there is a catch:
The market will only allow MAIN to keep that advantage if investors are still willing to pay a premium.
With that being said, in the recent earnings report MAIN reported pressure from:
• Higher interest expense
• Higher operating costs
• Compressing spreads
• Rising non-accruals
So naturally we do have to ask, how much of a premium does this stock still deserve to trade at?
MAIN is still fundamentally stronger than the vast majority of BDCs in the market.
But there is still a level of valuation risk, which is somewhat hidden by the fact that NAV is growing simply due to issuing shares at a premium.
