It is doubtless a positive to see that the Ares Commercial Real Estate Corporation (NYSE:ACRE) share price has gained some 31% in the last three months. But that doesn’t help the fact that the three year return is less impressive. In fact, the share price is down 62% in the last three years, falling well short of the market return.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they’ve been consistent with returns.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Ares Commercial Real Estate has made a profit in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn’t reliably profitable. Other metrics might give us a better handle on how its value is changing over time.
It’s quite likely that the declining dividend has caused some investors to sell their shares, pushing the price lower in the process. The revenue decline, at an annual rate of 17% over three years, might be considered salt in the wound.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Ares Commercial Real Estate in this interactive graph of future profit estimates.
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Ares Commercial Real Estate the TSR over the last 3 years was -42%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
Investors in Ares Commercial Real Estate had a tough year, with a total loss of 20% (including dividends), against a market gain of about 14%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn’t be so upset, since they would have made 1.2%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It’s always interesting to track share price performance over the longer term. But to understand Ares Commercial Real Estate better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for Ares Commercial Real Estate that you should be aware of before investing here.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.