Did Apollo Commercial Real Estate Finance’s (NYSE:ARI) Share Price Deserve to Gain 16%?

Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) share price is up 16% in the last three years, that falls short of the market return. Unfortunately, the share price has fallen 0.7% over twelve months.

Check out our latest analysis for Apollo Commercial Real Estate Finance

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Apollo Commercial Real Estate Finance was able to grow its EPS at 20% per year over three years, sending the share price higher. The average annual share price increase of 4.9% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.89.

NYSE:ARI Past and Future Earnings, August 5th 2019
NYSE:ARI Past and Future Earnings, August 5th 2019

It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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. We note that for Apollo Commercial Real Estate Finance the TSR over the last 3 years was 57%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It’s nice to see that Apollo Commercial Real Estate Finance shareholders have received a total shareholder return of 9.9% over the last year. And that does include the dividend. Having said that, the five-year TSR of 14% a year, is even better. If you would like to research Apollo Commercial Real Estate Finance in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.