Ares Commercial Real Estate Corporation (NYSE:ACRE), a US$398.25m small-cap, is a real estate company operating in an industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios as an asset class. Real estate investment trust, or a REIT, is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, a somewhat weaker growth of 8.50% in the upcoming year . Is now the right time to pick up some shares in real estate companies? Below, I will examine the sector growth prospects, as well as evaluate whether Ares Commercial Real Estate is lagging or leading its competitors in the industry.
What’s the catalyst for Ares Commercial Real Estate’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. In the past year, the industry delivered growth of 1.39%, though still underperforming the wider US stock market. Ares Commercial Real Estate leads the pack with its impressive earnings growth of 23.68% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at 7.64% over the next couple of years.
Is Ares Commercial Real Estate and the sector relatively cheap?
REIT companies are typically trading at a PE of 10.06x, lower than the rest of the US stock market PE of 18.26x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 9.32% on equities compared to the market’s 11.19%. On the stock-level, Ares Commercial Real Estate is trading at a PE ratio of 11.92x, which is relatively in-line with the average REIT stock. In terms of returns, Ares Commercial Real Estate generated 7.91% in the past year, which is 1.41% below the REIT sector.
Ares Commercial Real Estate’s future growth prospect aligns with that of the broader market and it is trading in-line with its peers. So if you like its growth prospects, you’ll be paying a fair value for the company. If the stock has been on your watchlist for a while, now may be the time to enter. However, before you make a decision on the stock, I suggest you look at Ares Commercial Real Estate’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has ACRE’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Ares Commercial Real Estate? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.