Is PennantPark Floating Rate Capital Ltd. overvalued or undervalued?

As of 15 November 2023, the valuation grade for PennantPark Floating Rate Capital Ltd. has moved from risky to very attractive, indicating a significant improvement in its valuation outlook. The company appears undervalued, particularly when considering its P/E ratio of 15, which is lower than the peer average of 14.47, and its price-to-book value of 0.96, suggesting it is trading below its book value. Additionally, the EV to EBITDA ratio stands at 5.80, which is competitive compared to peers like BrightSphere Investment Group, Inc. with an EV to EBITDA of 8.39, reinforcing the attractiveness of PennantPark's valuation.
In terms of recent performance, PennantPark's stock has underperformed relative to the S&P 500, with a year-to-date return of -10.16% compared to the index's 12.22%. This underperformance, coupled with a dividend yield of 4.69% and a ROCE of 16.51%, suggests that the market may be undervaluing the company's potential. Overall, the combination of favorable valuation ratios and peer comparisons supports the conclusion that PennantPark Floating Rate Capital Ltd. is currently undervalued.