Apollo Commercial Real Estate Finance (ARI): Five-Year Losses Deepen 40.9% Annually Heading Into Earnings

Apollo Commercial Real Estate Finance (NYSE:ARI) posted deeper losses for the period, with net losses having widened at an average rate of 40.9% per year over the last five years. The company is forecast to grow earnings by 25.03% per year, and consensus expects ARI to swing to profitability within three years, outpacing the broader market's typical growth rate. Looking ahead, investors will be weighing ARI's ability to deliver on this profit turnaround while margins and revenue growth remain under pressure.

See our full analysis for Apollo Commercial Real Estate Finance.

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Losses Accelerating at a 40.9% Clip

• Net losses have grown at an average rate of 40.9% per year over the past five years. This underscores the challenge of reversing negative momentum before the projected profitability window in three years.
• While the company is forecast to increase earnings by 25.03% per year, market observers stress that the scale of recent losses makes this turnaround especially notable. Some question whether above-market profit growth can counterbalance the steep pace of past losses.
  • It is striking that even with strong earnings growth forecasts, ARI’s track record of deepening annual losses leaves little margin for error as the company attempts its pivot to profitability.
  • Skeptics highlight continued pressure on margins and profit turnaround timing because of the persistence of net losses and slow improvement in net profit margins.

Revenue Growth Lags Broader Market

• ARI’s expected annual revenue growth is 9.4%, which falls short of the US market’s 10.3% yearly average. This indicates modest prospects for top-line expansion even as the company aims for profitability.
• Supporters point to the above-average earnings growth forecast as a bullish signal, but the revenue shortfall relative to the market creates tension for that view:
  • Even if profitability improves, the lower-than-average revenue growth compares unfavorably to broader market opportunities and may limit upside potential.
  • The pressure on profit margins, combined with a slower revenue growth rate, directly challenges any aggressively bullish outlook for a quick earnings rebound.

Valuation Stretched Against Peers

• ARI trades at a price-to-sales (P/S) ratio of 5x, which is above both its peer average of 3.6x and the US Mortgage REITs industry average of 4.2x. This positions the company at a clear premium despite ongoing unprofitability.
• Many investors view this premium as hard to justify without visible progress toward profitability:
  • The elevated valuation stands in stark contrast to ARI’s lagging revenue growth and persistent losses, directing attention to whether near-term improvement can support such a high multiple.
  • Broader market caution around commercial real estate finance increases the risk of paying a premium for a turnaround that may take longer than anticipated.

See our latest analysis for Apollo Commercial Real Estate Finance.

Next Steps

Don't just look at this quarter; the real story is in the long-term trend. We've done an in-depth analysis on Apollo Commercial Real Estate Finance's growth and its valuation to see if today's price is a bargain. Add the company to your watchlist or portfolio now so you don't miss the next big move.

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Despite an optimistic earnings growth forecast, Apollo Commercial Real Estate Finance faces challenges such as accelerating losses, lagging revenue growth, and a valuation premium over peers.

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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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