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If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. To wit, the Ares Commercial Real Estate Corporation (NYSE:ACRE) share price is 89% higher than it was a year ago, much better than the market return of around 42% (not including dividends) in the same period. So that should have shareholders smiling. Having said that, the longer term returns aren't so impressive, with stock gaining just 9.3% in three years.
See our latest analysis for Ares Commercial Real Estate
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Ares Commercial Real Estate was able to grow EPS by 330% in the last twelve months. It's fair to say that the share price gain of 89% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Ares Commercial Real Estate as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 9.30.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Ares Commercial Real Estate's TSR for the last year was 114%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Ares Commercial Real Estate shareholders have received a total shareholder return of 114% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 15% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Ares Commercial Real Estate better, we need to consider many other factors. To that end, you should learn about the 4 warning signs we've spotted with Ares Commercial Real Estate (including 2 which can't be ignored) .