Despite shrinking by US$69m in the past week, Apollo Commercial Real Estate Finance (NYSE:ARI) shareholders are still up 114% over 5 years

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) share price is up 18% in the last five years, that's less than the market return. But if you include dividends then the return is market-beating. Zooming in, the stock is up a respectable 7.6% in the last year.

Since the long term performance has been good but there's been a recent pullback of 4.5%, let's check if the fundamentals match the share price.

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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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Apollo Commercial Real Estate Finance's earnings per share are down 34% per year, despite strong share price performance over five years. This was, in part, due to extraordinary items impacting earning in the last twelve months.

The strong decline in earnings per share suggests the market isn't using EPS to judge the company. The falling EPS doesn't correlate with the climbing share price, so it's worth taking a look at other metrics.

We note that the dividend has not increased, so that doesn't seem to explain the increase, either. The revenue growth over five years doesn't seem to explain the buoyant share price, but a closer inspection of the trend might be informative.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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. So it makes a lot of sense to check out what analysts think Apollo Commercial Real Estate Finance will earn in the future (free profit forecasts).

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Apollo Commercial Real Estate Finance, it has a TSR of 114% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Apollo Commercial Real Estate Finance shareholders have received returns of 20% over twelve months (even including dividends), which isn't far from the general market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 16%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Apollo Commercial Real Estate Finance you should be aware of, and 1 of them is significant.

Of course Apollo Commercial Real Estate Finance may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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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.