Shareholders Of Ares Commercial Real Estate (NYSE:ACRE) Must Be Happy With Their 114% Total Return

By
Simply Wall St
Published
May 26, 2021
NYSE:ACRE
Source: Shutterstock

The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. To wit, the Ares Commercial Real Estate Corporation (NYSE:ACRE) share price is 89% higher than it was a year ago, much better than the market return of around 43% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! The longer term returns have not been as good, with the stock price only 9.0% higher than it was three years ago.

See our latest analysis for Ares Commercial Real Estate

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During the last year Ares Commercial Real Estate grew its earnings per share (EPS) by 330%. This EPS growth is significantly higher than the 89% increase in the share price. Therefore, it seems the market isn't as excited about Ares Commercial Real Estate as it was before. This could be an opportunity. This cautious sentiment is reflected in its (fairly low) P/E ratio of 9.23.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
NYSE:ACRE Earnings Per Share Growth May 27th 2021

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Ares Commercial Real Estate's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Ares Commercial Real Estate, it has a TSR of 114% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Ares Commercial Real Estate shareholders have received a total shareholder return of 114% over one year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 15% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should learn about the 4 warning signs we've spotted with Ares Commercial Real Estate (including 2 which can't be ignored) .

But note: Ares Commercial Real Estate may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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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. 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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