Business development company Prospect Capital Corp. (NASDAQ:PSEC) has surged to new 52 weeks high lately on the back of growing investor optimism about the high yield sector. As a result, for the first time in years Prospect Capital's shares are changing hands for a price close to the company's Net Asset Value. Since Prospect Capital is overbought, though, the long term reward-to-risk combination is no longer attractive here, and investors may want to think about dumping the business development company as long as it is hot.
Prospect Capital was one of the most disliked BDCs almost exactly one year ago when investors lost it over the energy price crisis and factored in fictitious losses from their energy loan exposure into BDC valuations. Prospect Capital's shares were selling for about half Net Asset Value a year ago when high risk BDC were widely out of favor.
