Ares Commercial Real Estate (NYSE:ACRE) shareholders notch a 6.8% CAGR over 5 years, yet earnings have been shrinking

Ares Commercial Real Estate Corporation (NYSE:ACRE) shareholders should be happy to see the share price up 13% in the last month. But over the last half decade, the stock has not performed well. After all, the share price is down 21% in that time, significantly under-performing the market.

While the last five years has been tough for Ares Commercial Real Estate shareholders, this past week has shown signs of promise. So let’s look at the longer term fundamentals and see if they’ve been the driver of the negative returns.

See our latest analysis for Ares Commercial Real Estate

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Looking back five years, both Ares Commercial Real Estate’s share price and EPS declined; the latter at a rate of 45% per year. The share price decline of 5% per year isn’t as bad as the EPS decline. So investors might expect EPS to bounce back — or they may have previously foreseen the EPS decline. With a P/E ratio of 167.78, it’s fair to say the market sees a brighter future for the business.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
NYSE:ACRE Earnings Per Share Growth December 14th 2023

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. It might be well worthwhile taking a look at our free report on Ares Commercial Real Estate’s earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Ares Commercial Real Estate’s TSR for the last 5 years was 39%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Ares Commercial Real Estate shareholders gained a total return of 5.3% during the year. But that return falls short of the market. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 7% over five years. It’s quite possible the business continues to execute with prowess, even as the share price gains are slowing. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example – Ares Commercial Real Estate has 4 warning signs (and 2 which are potentially serious) we think you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

What are the risks and opportunities for Ares Commercial Real Estate?

Ares Commercial Real Estate Corporation, a specialty finance company, originates and invests in commercial real estate (CRE) loans and related investments in the United States.

View Full Analysis

Rewards

  • Earnings are forecast to grow 90.8% per year

Risks

  • Debt is not well covered by operating cash flow

  • Profit margins (8.2%) are lower than last year (56.4%)

  • Large one-off items impacting financial results

View all Risks and Rewards

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.

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