Sixth Street Specialty Lending has been treading water for the past six months, holding steady at $18.19. The stock also fell short of the S&P 500’s 14% gain during that period.
Is now the time to buy Sixth Street Specialty Lending, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Sixth Street Specialty Lending Will Underperform?
We’re passing on Sixth Street Specialty Lending for now. Here are two reasons why there are better opportunities than TSLX, plus one stock we’d rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. Sixth Street Specialty Lending’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 7.1% over the last two years. 
Note: Quarters not shown were determined to be outliers because they were impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sixth Street Specialty Lending’s EPS grew at a weak 1.6% compounded annual growth rate over the last five years, lower than its 9.3% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
We cheer for all companies supporting the economy, but in the case of Sixth Street Specialty Lending, we’ll be cheering from the sidelines. With its shares lagging the market recently, the stock trades at 10× forward P/E (or $18.19 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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