What I'm Watching With Blue Owl Capital To See If They Beat The Market

Blue Owl Capital Corporation (NYSE: OBDC), one of the largest business development companies (BDCs) in America, lost more than 40% of its value over the past 12 months. Let's see why this BDC underperformed the market and most of its peers -- and if it's still worth buying today.

What does Blue Owl Capital do?

As a BDC, Blue Owl provides financing for "middle market" companies that struggle to secure loans from conventional banks because they're considered higher-risk clients. In exchange for taking on that risk, BDCs charge higher interest fees than banks. They're also obligated to pay out at least 90% of the taxable income as dividends to maintain a lower tax rate.

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Blue Owl has invested in 234 companies across its $16.5 billion portfolio. It allocates 79% of that portfolio to senior secured investments, which puts it ahead of unsecured creditors if those businesses go bankrupt. Its year-end net asset value (NAV) per share rose from $14.74 in 2020 to $14.81 in 2025, but its debt-to-equity ratio jumped from 0.87 to 1.19 as it issued more shares.

Why did Blue Owl's stock crash?

At $11, Blue Owl's stock looks like a bargain below its latest NAV per share, and it pays a high forward dividend yield of 13.5%. However, its projected EPS of $1.36 this year falls short of its forward dividend rate of $1.51 per share. Like other BDCs, Blue Owl's profits are declining as interest rates come down. Analysts expect its EPS to decline 14% to $1.32 in 2027.

The macro pressure has already weighed on the broader BDC sector, but Blue Owl is also facing company-specific challenges. Back in February, Blue Owl Capital Corp. II (a related non-traded fund) unexpectedly restricted withdrawals after hitting its redemption limits. To stay solvent, it sold roughly $1.4 billion in loans. The same pressure didn't hit Blue Owl, but the problems at its related fund triggered an investor panic across all of its related funds.

In March, Glendon Capital Management claimed that Blue Owl and other BDCs were misrepresenting portfolio loss rates and sitting on "larger losses than reported." Those allegations drove Blue Owl below its NAV, exacerbating investor distrust in its depressed stock. So, even though Blue Owl looked undervalued, many value-seeking investors shunned the stock because they assumed it deserved its discount.

If interest rates rise abruptly, Blue Owl's earnings grow again, and it addresses the bearish concerns about its portfolio, its stock might outperform the market this year. But I don't think it can check all those boxes -- so I'd avoid it until a few more green flags appear.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.