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. For example, the KKR Real Estate Finance Trust Inc. (NYSE:KREF), share price is up over the last year, but its gain of 31% trails the market return. However, the stock hasn't done so well in the longer term, with the stock only up 13% in 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.
KKR Real Estate Finance Trust was able to grow EPS by 298% in the last twelve months. This EPS growth is significantly higher than the 31% increase in the share price. Therefore, it seems the market isn't as excited about KKR Real Estate Finance Trust as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 10.91.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on KKR Real Estate Finance Trust's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of KKR Real Estate Finance Trust, it has a TSR of 45% for the last year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the market return was 42% in the last year, KKR Real Estate Finance Trust returned 45% to shareholders. Most would be happy with a gain, and it helps that the year's return is actually better than the average return of 14% over the last three years, implying that the company is doing better recently. We're certainly happy to see the uptick and we hope the underlying business goes on to justify the improved valuation. 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 example, we've discovered 3 warning signs for KKR Real Estate Finance Trust (2 are a bit concerning!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.