Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by KKR Real Estate Finance Trust Inc. (NYSE:KREF) shareholders over the last year, as the share price declined 51%. That contrasts poorly with the market return of -17%. We wouldn't rush to judgement on KKR Real Estate Finance Trust because we don't have a long term history to look at. It's down 54% in about a month. But this could be related to poor market conditions -- stocks are down 31% in the same time.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Unfortunately KKR Real Estate Finance Trust reported an EPS drop of 0.5% for the last year. This reduction in EPS is not as bad as the 51% share price fall. So it seems the market was too confident about the business, a year ago. The P/E ratio of 6.31 also points to the negative market sentiment.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
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. Dive deeper into the earnings by checking this interactive graph of KKR Real Estate Finance Trust'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 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. We note that for KKR Real Estate Finance Trust the TSR over the last year was -47%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
KKR Real Estate Finance Trust shareholders are down 47% for the year (even including dividends) , even worse than the market loss of 17%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. Notably, the loss over the last year isn't as bad as the 52% drop in the last three months. So it seems like some holders have been dumping the stock of late - and that's not bullish. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - KKR Real Estate Finance Trust has 3 warning signs (and 1 which can't be ignored) we think you should know about.
KKR Real Estate Finance Trust 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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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