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Ares Commercial Real Estate Corporation’s (NYSE:ACRE) most recent earnings update in December 2018 indicated that the business benefited from a strong tailwind, eventuating to a double-digit earnings growth of 27%. Investors may find it useful to understand how market analysts perceive Ares Commercial Real Estate’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
Market analysts’ prospects for the coming year seems pessimistic, with earnings decreasing by -2.0%. In the next couple of years, earnings are expected to continue to be below today’s level, with a decrease of -1.1% in 2021, eventually reaching US$38m in 2022.
Although it is helpful to be aware of the growth rate year by year relative to today’s value, it may be more insightful gauging the rate at which the earnings are moving every year, on average. The advantage of this approach is that it removes the impact of near term flucuations and accounts for the overarching direction of Ares Commercial Real Estate’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I’ve appended a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 3.1%. This means that, we can presume Ares Commercial Real Estate will grow its earnings by 3.1% every year for the next couple of years.
For Ares Commercial Real Estate, there are three essential factors you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is ACRE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ACRE is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of ACRE? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.