Why Fifth Street Senior Floating Is Overvalued

Introduction

With the July 14, 2017, announcement that OakTree Capital (NYSE:OAK) will be replacing Fifth Street Asset Management (NASDAQ:FSAM) as Fifth Street Senior Floating's (NASDAQ:FSFR) Investment Advisor, investors have pushed the stock price up. As recently as June 22, 2017, FSFR stock was trading at $7.32 a share. However, starting with the June 29, 2017, Wall Street Journal story reporting on a potential sale of the investment contracts FSFR and Fifth Street Finance (NYSE:FSC) to Oak and the formal announcement two weeks later, the price has risen 23% to over $9.0.

The BDC Reporter, which has been following the unfolding Fifth Street companies saga in its News Of the Day reporting to subscribers, asks the question as to whether the rise of FSFR stock price is likely to continue. After all, even at its new and loftier price, it trades at a (17%) discount to book value and below an over $10 price reached earlier in the year. If FSFR's price matched its latest book value, another 10% price increase would be in store.

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