What a brutal six months it’s been for Sixth Street Specialty Lending. The stock has dropped 25.9% and now trades at $18.28, rattling many shareholders. This might have investors contemplating their next move.
Is now the time to buy Sixth Street Specialty Lending, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Sixth Street Specialty Lending Will Underperform?
Even though the stock has become cheaper, we're sitting this one out for now. Here are two reasons why TSLX doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
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 shows its demand has slowed as its annualized revenue growth of 1.2% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sixth Street Specialty Lending’s EPS grew at a weak 1.3% compounded annual growth rate over the last five years, lower than its 10.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Sixth Street Specialty Lending falls short of our quality standards. Following the recent decline, the stock trades at 9.3× forward P/E (or $18.28 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
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