Is Capital Southwest Corp overvalued or undervalued?

As of 1 February 2021, Capital Southwest Corp's valuation grade moved from risky to very attractive, indicating a significant improvement in its investment appeal. The company is currently considered undervalued, with a P/E ratio of 17, which is notably lower than its peers such as Oaktree Specialty Lending Corp at 133.65 and New Mountain Finance Corp at 10.10. Additionally, the EV to EBITDA ratio stands at 8.07, further supporting the undervaluation thesis.
The company boasts a strong dividend yield of 33.43% and a return on capital employed (ROCE) of 16.07%, which are compelling metrics for potential investors. In comparison, Barings BDC, Inc. has an EV to EBITDA of 9.62, highlighting Capital Southwest Corp's relative attractiveness. Despite a challenging year with a 1Y return of -14.98% compared to the S&P 500's 10.26%, the long-term performance over 5 years shows a gain of 57.14%, suggesting potential for recovery and growth.