It's easy to feel disappointed if you buy a stock that goes down. But often it is not a reflection of the fundamental business performance. The Ares Commercial Real Estate Corporation (NYSE:ACRE) is down 10% over a year, but the total shareholder return is -1.4% once you include the dividend. And that total return actually beats the market decline of 11%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 3.4% in three years.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Unfortunately Ares Commercial Real Estate reported an EPS drop of 18% for the last year. This fall in the EPS is significantly worse than the 10% the share price fall. It may have been that the weak EPS was not as bad as some had feared.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Ares Commercial Real Estate's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Ares Commercial Real Estate, it has a TSR of -1.4% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While it's certainly disappointing to see that Ares Commercial Real Estate shares lost 1.4% throughout the year, that wasn't as bad as the market loss of 11%. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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 3 warning signs we've spotted with Ares Commercial Real Estate (including 2 which are significant) .
Ares Commercial Real Estate is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.