Apollo Commercial Real Estate Finance (ARI): Evaluating Valuation on JPMorgan’s Upgrade and Improved Loan Performance

JPMorgan’s decision to upgrade Apollo Commercial Real Estate Finance (NYSE:ARI) reflects growing confidence after the company made headway in resolving troubled loans. The move signals an improved outlook for portfolio growth and future earnings.

See our latest analysis for Apollo Commercial Real Estate Finance.

After a steady climb, Apollo Commercial Real Estate Finance’s share price has logged a gain of 15.6% year-to-date, while delivering an impressive 30.3% total return over the last twelve months. With momentum building and renewed optimism from the recent upgrade, both short-term and long-term investors have found plenty to cheer about.

If the shift in sentiment here has you thinking bigger, this could be a great moment to broaden your search and discover fast growing stocks with high insider ownership

With shares already advancing and analyst targets edging only slightly higher, the key question now is whether Apollo Commercial Real Estate Finance remains undervalued or if the market is already accounting for its improved prospects, leaving little room for surprise upside.

Price-to-Sales of 5.2x: Is it justified?

Apollo Commercial Real Estate Finance trades at a price-to-sales (P/S) ratio of 5.2x, slightly below its peer average of 5.5x. This figure is notably above the sector average of 4.3x and the company's own estimated fair P/S of 1.8x. The last close was $10.17, placing current trading levels ahead of what some peer and fair value comparisons indicate.

The price-to-sales multiple measures how much investors are paying for each dollar of sales generated by the company. This ratio is particularly relevant for businesses where profits are inconsistent or negative, which applies to Apollo Commercial Real Estate Finance, since it focuses on top-line revenue rather than bottom-line earnings.

Investors are currently paying a premium over the industry for ARI's sales. While the company appears inexpensive relative to immediate peers, the valuation seems higher when compared to the sector as a whole and the estimated fair multiple. If sentiment or outlook change, the market could gradually move closer to what is reflected in the fair P/S ratio.

Explore the SWS fair ratio for Apollo Commercial Real Estate Finance

Result: Price-to-Sales of 5.2x (ABOUT RIGHT)

However, slowing annual revenue growth and recent negative net income highlight ongoing headwinds that could challenge Apollo's momentum if conditions do not improve.

Find out about the key risks to this Apollo Commercial Real Estate Finance narrative.

Build Your Own Apollo Commercial Real Estate Finance Narrative

If you see the story differently or value your own insight, you can dive into the numbers yourself and craft a personal perspective in just a few minutes. Do it your way

A great starting point for your Apollo Commercial Real Estate Finance research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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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.

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