Apollo Commercial Real Estate Finance Inc (NYSE:ARI), a US$1.92B small-cap, is a real estate company operating in an industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios as an asset class. A real estate investment trust (REIT) is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year . An interesting question to explore is whether we can we benefit from entering into the real estate sector right now. In this article, I’ll take you through the real estate sector growth expectations, and also determine whether Apollo Commercial Real Estate Finance is a laggard or leader relative to its real estate sector peers. See our latest analysis for Apollo Commercial Real Estate Finance
What’s the catalyst for Apollo Commercial Real Estate Finance’s sector growth?
NYSE:ARI Past Future Earnings Feb 14th 18 Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. Over the past year, the industry saw growth in the teens, beating the US market growth of 9.73%. Apollo Commercial Real Estate Finance leads the pack with its impressive earnings growth of 26.67% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at -3.57% over the next couple of years.
Is Apollo Commercial Real Estate Finance and the sector relatively cheap?
NYSE:ARI PE PEG Gauge Feb 14th 18 REIT companies are typically trading at a PE of 9.73x, below the broader US stock market PE of 18.88x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 8.67% on equities compared to the market’s 10.49%. On the stock-level, Apollo Commercial Real Estate Finance is trading at a PE ratio of 9.95x, which is relatively in-line with the average REIT stock. In terms of returns, Apollo Commercial Real Estate Finance generated 10.96% in the past year, which is 2.29% over the REIT sector.
Apollo Commercial Real Estate Finance’s future growth prospect aligns with that of the broader market and it is trading in-line with its peers. So if you like its growth prospects, you’ll be paying a fair value for the company. If the stock has been on your watchlist for a while, now may be the time to enter. However, before you make a decision on the stock, I suggest you look at Apollo Commercial Real Estate Finance’s fundamentals in order to build a holistic investment thesis.
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