There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you're going to buy some stocks that fall short of the market. Unfortunately for shareholders, while the KKR Real Estate Finance Trust Inc. (NYSE:KREF) share price is up 37% in the last year, that falls short of the market return. Zooming out, the stock is actually down 0.9% in the last three years.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over the last twelve months, KKR Real Estate Finance Trust actually shrank its EPS by 39%.
So we don't think that investors are paying too much attention to EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
Absent any improvement, we don't think a thirst for dividends is pushing up the KKR Real Estate Finance Trust's share price. It saw it's revenue decline by 23% over twelve months. It's fair to say we're a little surprised to see the share price up, and that makes us cautious.
The graphic below depicts how earnings and revenue have 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. This free report showing analyst forecasts should help you form a view on KKR Real Estate Finance Trust
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. 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 51%, 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 up 51% for the year (even including dividends). It's always nice to make money but this return falls short of the market return which was about 59% for the year. On the bright side that gain is actually better than the average return of 9% over the last three years, implying that the company is doing better recently. If the share price is up as a result of improved business performance, then this kind of improvement may be sustained. It's always interesting to track share price performance over the longer term. But to understand KKR Real Estate Finance Trust better, we need to consider many other factors. For instance, we've identified 2 warning signs for KKR Real Estate Finance Trust that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. 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.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
