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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI), since the last five years saw the share price fall 45%.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Apollo Commercial Real Estate Finance
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Looking back five years, both Apollo Commercial Real Estate Finance's share price and EPS declined; the latter at a rate of 11% per year. In this case, the EPS change is really very close to the share price drop of 11% a year. This implies that the market has had a fairly steady view of the stock. So it's fair to say the share price has been responding to changes in EPS.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Apollo Commercial Real Estate Finance's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. 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 -0.7% 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 gained a total return of 8.0% during the year. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 0.1% per year, over five years. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Apollo Commercial Real Estate Finance better, we need to consider many other factors. For example, we've discovered 4 warning signs for Apollo Commercial Real Estate Finance (1 is significant!) that you should be aware of before investing here.