Stock Analysis

If You Like EPS Growth Then Check Out KKR Real Estate Finance Trust (NYSE:KREF) Before It's Too Late

NYSE:KREF
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In contrast to all that, I prefer to spend time on companies like KKR Real Estate Finance Trust (NYSE:KREF), which has not only revenues, but also profits. Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for KKR Real Estate Finance Trust

How Fast Is KKR Real Estate Finance Trust Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That makes EPS growth an attractive quality for any company. KKR Real Estate Finance Trust managed to grow EPS by 11% per year, over three years. That's a pretty good rate, if the company can sustain it.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of KKR Real Estate Finance Trust's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. While we note KKR Real Estate Finance Trust's EBIT margins were flat over the last year, revenue grew by a solid 94% to US$168m. That's progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NYSE:KREF Earnings and Revenue History November 3rd 2021

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of KKR Real Estate Finance Trust's forecast profits?

Are KKR Real Estate Finance Trust Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. As a result, I'm encouraged by the fact that insiders own KKR Real Estate Finance Trust shares worth a considerable sum. Indeed, they hold US$17m worth of its stock. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 1.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations between US$1.0b and US$3.2b, like KKR Real Estate Finance Trust, the median CEO pay is around US$3.5m.

The CEO of KKR Real Estate Finance Trust only received US$1.3m in total compensation for the year ending . That's clearly well below average, so at a glance, that arrangement seems generous to shareholders, and points to a modest remuneration culture. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. I'd also argue reasonable pay levels attest to good decision making more generally.

Does KKR Real Estate Finance Trust Deserve A Spot On Your Watchlist?

One important encouraging feature of KKR Real Estate Finance Trust is that it is growing profits. Earnings growth might be the main game for KKR Real Estate Finance Trust, but the fun does not stop there. Boasting both modest CEO pay and considerable insider ownership, I'd argue this one is worthy of the watchlist, at least. You still need to take note of risks, for example - KKR Real Estate Finance Trust has 3 warning signs (and 2 which are concerning) we think you should know about.

Although KKR Real Estate Finance Trust certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're here to simplify it.

Discover if KKR Real Estate Finance Trust might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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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