Sixth Street Specialty Lending (TSLX)
Sixth Street Specialty Lending keeps us up at night. Its decelerating growth and falling profitability suggest it’s struggling to scale down costs as demand fades.― StockStory Analyst Team
1. News
2. Summary
Why We Think Sixth Street Specialty Lending Will Underperform
Originally launched as TPG Specialty Lending before rebranding in 2020, Sixth Street Specialty Lending (NYSE:TSLX) is a business development company that provides customized financing solutions to middle-market companies across various industries.
- Earnings per share fell by 3.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Annual revenue growth of 5.3% over the last two years was below our standards for the financials sector
- On the bright side, its stellar return on equity showcases management’s ability to surface highly profitable business ventures
Sixth Street Specialty Lending lacks the business quality we seek. Better businesses are for sale in the market.
Why There Are Better Opportunities Than Sixth Street Specialty Lending
At $22.27 per share, Sixth Street Specialty Lending trades at 5x forward price-to-sales. The market typically values companies like Sixth Street Specialty Lending based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere.
Paying a premium for high-quality companies with strong long-term earnings potential is preferable to owning challenged businesses with questionable prospects.
3. Sixth Street Specialty Lending (TSLX) Research Report: Q3 CY2025 Update
Business development company Sixth Street Specialty Lending (NYSE:TSLX) reported Q3 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 8.1% year on year to $160.1 million. Its GAAP profit of $0.47 per share was 8.4% below analysts’ consensus estimates.
Sixth Street Specialty Lending (TSLX) Q3 CY2025 Highlights:
Company Overview
Originally launched as TPG Specialty Lending before rebranding in 2020, Sixth Street Specialty Lending (NYSE:TSLX) is a business development company that provides customized financing solutions to middle-market companies across various industries.
As a business development company (BDC), Sixth Street Specialty Lending operates under regulations that require it to distribute at least 90% of its taxable income to shareholders. The company focuses on providing direct loans to middle-market businesses—typically companies with annual EBITDA between $10 million and $250 million—that often find themselves too large for traditional bank lending but too small to access public debt markets efficiently.
The firm's investment strategy centers on first-lien senior secured loans, which provide priority claim on borrowers' assets in case of default, though it also selectively invests in second-lien and mezzanine debt. A typical transaction might involve Sixth Street providing $50-200 million in financing to a software company seeking capital for an acquisition or to a healthcare services provider funding expansion.
Sixth Street differentiates itself through its affiliation with Sixth Street Partners, a global investment firm with significant resources and expertise across multiple sectors. This relationship gives the BDC access to deal flow, industry insights, and due diligence capabilities that enhance its investment process. The company's investment professionals conduct thorough analysis of potential borrowers, examining factors like competitive positioning, cash flow stability, and management quality.
Revenue comes primarily from interest income on its debt investments, with rates typically including a variable component tied to benchmarks like SOFR plus a fixed spread. The company also sometimes receives equity components like warrants or preferred shares as part of its investment arrangements, providing potential upside beyond interest income.
4. Specialty Finance
Specialty finance companies provide targeted lending or financial services for specific industries or needs. They benefit from expertise in particular sectors, often reduced competition in specialized niches, and tailored underwriting that can yield higher margins. Challenges include concentration risk in specific industries, difficulty achieving scale efficiencies, and potential vulnerability during sector-specific downturns affecting their specialized markets.
Sixth Street Specialty Lending competes with other publicly traded BDCs including Ares Capital Corporation (NASDAQ:ARCC), FS KKR Capital Corp. (NYSE:FSK), and Blue Owl Capital Corporation (NYSE:OBDC), as well as private credit funds managed by firms like Blackstone, Apollo, and KKR.
5. Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Sixth Street Specialty Lending’s 10% annualized revenue growth over the last five years was decent. Its growth was slightly above the average financials company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Sixth Street Specialty Lending’s recent performance shows its demand has slowed as its annualized revenue growth of 5.4% over the last two years was below its five-year trend. 
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.
This quarter, Sixth Street Specialty Lending’s revenue fell by 8.1% year on year to $160.1 million but beat Wall Street’s estimates by 1.6%.
6. Pre-Tax Profit Margin
Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Specialty Finance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.
The pre-tax profit margin includes interest because it's central to how financial institutions generate revenue and manage costs. Tax considerations are excluded since they represent government policy rather than operational performance, giving investors a clearer view of business fundamentals.
Over the last four years, Sixth Street Specialty Lending’s pre-tax profit margin has risen by 27.8 percentage points, going from 57.7% to 29.9%. It has also declined by 6.1 percentage points on a two-year basis, showing its expenses have consistently increased at a faster rate than revenue. This usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.
Sixth Street Specialty Lending’s pre-tax profit margin came in at 32.5% this quarter. This result was 7.9 percentage points better than the same quarter last year.
7. Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Sadly for Sixth Street Specialty Lending, its EPS declined by 3.3% annually over the last five years while its revenue grew by 10%. This tells us the company became less profitable on a per-share basis as it expanded.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Sixth Street Specialty Lending, its two-year annual EPS declines of 11.3% show it’s continued to underperform. These results were bad no matter how you slice the data.
In Q3, Sixth Street Specialty Lending reported EPS of $0.47, up from $0.44 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Sixth Street Specialty Lending’s full-year EPS of $2.04 to shrink by 1.8%.
8. Return on Equity
Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.
Over the last five years, Sixth Street Specialty Lending has averaged an ROE of 13.3%, healthy for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This is a bright spot for Sixth Street Specialty Lending.
9. Balance Sheet Assessment
The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.
If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.
Sixth Street Specialty Lending currently has $1.83 billion of debt and $1.62 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 1.1×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 3.5× for a financials business.
10. Key Takeaways from Sixth Street Specialty Lending’s Q3 Results
It was encouraging to see Sixth Street Specialty Lending beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed. Overall, this was a softer quarter. The stock traded down 2% to $21.86 immediately after reporting.
11. Is Now The Time To Buy Sixth Street Specialty Lending?
Updated: December 4, 2025 at 11:44 PM EST
When considering an investment in Sixth Street Specialty Lending, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.
Sixth Street Specialty Lending falls short of our quality standards. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its declining pre-tax profit margin shows the business has become less efficient. And while the company’s above-average ROE suggests its management team has made good investment decisions, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets.
Sixth Street Specialty Lending’s forward price-to-sales ratio is 5x. The market typically values companies like Sixth Street Specialty Lending based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere.